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China Buys Into Russia – Strategic Domination?

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In the grand chessboard of international politics and economics, a subtle yet significant game is being played, with China and Russia as its primary players. The backdrop of this strategic play is the recent and substantial withdrawal of Western companies from Russia, following Moscow’s aggressive actions in Ukraine. This exodus has opened up a vacuum in the Russian market, a space that is rapidly being filled by companies from China and the former Soviet republics. This shift in business ownership signals more than just a change in the economic landscape; it points to a deeper, more calculated move by China to gain a significant foothold and, potentially, an upper hand in Russia.

Since the conflict with Ukraine began, the numbers paint a telling picture: nearly 10,000 companies with foreign affiliations have left Russia. This massive departure, as outlined in a report by Vedomosti and based on data from SPARK-Interfax, reflects the isolation Russia faces from the Western world. Yet, in this void, there’s been a remarkable increase in the presence of firms from former Soviet states and, notably, China. Companies from Belarus, Kyrgyzstan, and Kazakhstan, among others, have made up a significant portion of new businesses in Russia. Chinese involvement, in particular, has been striking, accounting for 25% of these new entities. This surge of Chinese investment is not an accident but a calculated move in Beijing’s broader strategy.

The influx of Chinese and regional companies, however, hasn’t completely filled the gap left by the West. The total number of legal entities with foreign involvement in Russia has decreased significantly, from a peak of 185,000 in 2017 to just 116,400 by the end of 2023. This statistic, as reported by Vedomosti, underscores the profound impact of Western sanctions and the subsequent eastward shift in Russia’s trade and supply chains. Mikhail Nikolayev of the ACRA points out that while these sanctions have hit the number of foreign-affiliated companies in Russia, the realignment towards the East has boosted new company registrations from alternative markets.

Beneath the surface of these economic shifts lies a more ominous narrative: China’s strategic ambition to extend its influence over Russia. The deepening economic and political ties between Beijing and Moscow, particularly since the start of the Ukraine conflict, suggest a deliberate Chinese strategy to leverage its growing economic might. The trade turnover between the two countries, which soared to a record $190 billion last year, further illustrates this point. This increase in trade, as well as the sharp rise in Russian raw material exports to China and Chinese goods imports into Russia, all point towards Beijing using economic leverage as a tool to gain greater influence over Moscow.

Critics from both the West and within Russia have voiced concerns that Beijing is exploiting Russia’s isolation to turn it into a compliant puppet. The vast difference in the size of their economies – more than tenfold – lends credence to these worries. This situation has led to the notion of “vassal dependence,” suggesting Russia is becoming increasingly subservient to China’s economic agenda. However, it’s worth noting that even after the significant growth in trade, China’s share in Russia’s total trade is around 22 percent – significant, but not as overwhelming as it might seem. For comparison, China accounts for an even larger share, 26 percent, of Australia’s foreign trade.

Russia, despite its growing economic dependence on China, has not entirely capitulated to Beijing’s influence. Moscow has not joined China’s flagship Belt and Road Initiative or recognized its territorial claims in the South China Sea. These actions, or lack thereof, demonstrate Russia’s attempts to maintain some degree of autonomy. Furthermore, the incarceration of alleged Chinese intelligence assets in Russia, which could easily have been kept under wraps, is a telling sign of Moscow asserting its independence, albeit subtly.

The strategic relationship between the two nations, often described as a ‘no limits’ partnership, actually has firm boundaries. China’s reluctance to provide lethal weapons to Russia or make significant direct investments in key Russian assets, such as the Power of Siberia II pipeline, indicates a cautious approach dictated by Beijing’s strategic interests. In 2022, the China-based Asian Infrastructure Investment Bank even froze lending to Russia and Belarus, reflecting China’s careful balancing act.

This nuanced and complex relationship between Russia and China paints a picture of mutual need and strategic caution, rather than outright dominance by China. While Beijing certainly sees an opportunity in Russia’s isolation from the West, it is also aware of the risks and limitations in turning Moscow into a vassal state. The shared interests and strategic logic in confronting the West provide a solid foundation for cooperation, but not without its own set of limits and reservations.

China’s strategies for domination are subtle and powerful. They are well thought out, longterm and strategid. Without anyone even realizing it, China is slowly taking hold of Russia in an irresistible grip. How many other countries will be sucked into China’s sphere in the same way?

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