China-Russia Relations: September 2024

Financial Tensions: Russian companies are experiencing significant delays and increased costs in transactions with Chinese partners due to stricter compliance measures by Chinese banks. Following U.S. threats of secondary sanctions, Chinese banks have begun halting transactions with Russia, causing tens of billions of yuan in payments to be frozen. Those actions have particularly affected smaller Russian companies, while major trade in commodities such as oil and grain is largely unchanged. Some Russian businesses are using intermediaries or alternative methods to circumvent the issues. The former has led to transaction costs rising to 6 percent from close to 0 percent.

Chinese banks have reduced their assets in Russia amid ongoing sanctions over Russia's invasion of Ukraine, complicating trade between the two countries. In the second quarter of 2024, the Bank of China cut its assets in Russia by 37 percent, and the Industrial and Commercial Bank of China reduced theirs by 27 percent, citing payment difficulties. Chinese banks overall are becoming increasingly cautious in response to compliance issues and fears of U.S. secondary sanctions. Payment processing for Russian entities has become more difficult, especially for sanctioned organizations, leading to delays and increased transaction costs for Russian businesses.

Military Cooperation and Aid: China’s Defense Ministry has announced joint naval and air exercises with Russia, called the Northern United-2024 exercises, starting this month in the Sea of Japan (often referred to as East Sea) and the Sea of Okhotsk. The drills aim to enhance strategic cooperation and address security threats. The Defense Ministry will also conduct joint naval cruises in the Pacific and participate in Russia’s Great Ocean-24 exercise for the fifth time. The White House stated there is no need to adjust U.S. defense strategy in response to the recent joint naval and air exercises between Russia and China. On September 9, John Kirby, a National Security Council spokesperson, described the drills as long planned and not a cause for concern. The exercises, which include joint patrols in the Pacific and participation in Russia’s Ocean-2024, are part of ongoing military cooperation between Russia and China. The United States is monitoring the situation but sees no immediate threat. The exercises come amid a perceived sea power gap in the western Pacific, with some U.S. aircraft carriers diverted from the region. Russia and China began naval exercises in the Sea of Japan on September 21.

On September 11, Russia stated that its partnership with China is not aimed at other countries but is a defensive measure against potential threats, particularly from the United States. Foreign Ministry spokeswoman Maria Zakharova emphasized that their strategic partnership is not aggressive but is intended to counteract potential U.S. military action, such as the possible deployment of missiles in Japan. The partnership, formalized in a no-limits deal in 2022, focuses on strategic cooperation but does not constitute a formal military alliance.

The day before, U.S. Deputy Secretary of State Kurt Campbell had accused China of providing "very substantial" military assistance to Russia, including direct support for Russia’s war efforts in Ukraine. That assistance reportedly includes advanced military technology, which China is supplying to help bolster Russia’s military capabilities. In return, Russia is sharing submarine, missile, and other sensitive technology with China. Campbell expressed concerns that those developments could pose a threat not only to the United States but also to other countries such as Australia, India, Japan, and South Korea. He urged Europe to take a firmer stance on China’s support for Russia, suggesting that increased scrutiny of the financial institutions involved could have significant impacts.

Diplomatic Relations: After Russia’s Deputy Foreign Minister Sergei Ryabkov warned, on September 1, that the country would change its nuclear policy in response to the supposed escalation of Western involvement in Ukraine (though he did not provide details), China reaffirmed its stance against using nuclear weapons. Chinese Foreign Ministry spokesperson Mao Ning urged calm and dialogue to reduce strategic risks.

Taiwanese President Lai Ching-te recently suggested that China’s territorial claims over Taiwan are driven by a desire to reshape global order rather than by genuine territorial integrity. He pointed out that China should reclaim territories lost to Russia in the nineteenth century if it is truly motivated by territorial concerns. In response, Russian officials criticized Lai, emphasizing that Russia and China settled their border disputes in a 2004 agreement and expressing support for China’s stance on Taiwan.

Chinese leader Xi Jinping is set to visit Russia next month for the BRICS summit in Kazan, marking his second trip since Russia’s invasion of Ukraine in February 2022. Although officially neutral, Beijing has supported Russia’s claim that the West provoked the conflict, and continues to provide vital military components to Moscow. Xi’s visit highlights the deepening economic and military ties between China and Russia, reflecting their efforts to strengthen their partnership amid Western sanctions and geopolitical tensions.

At the Xiangshan Forum on September 13, Chinese and Russian defense officials criticized the West, with China advocating for stronger military ties with developing nations and Russia accusing the United States of escalating tensions in the Asia-Pacific. Russian Deputy Defense Minister Alexander Fomin claimed the United States was trying to contain both Russia and China. The forum also addressed recent military developments, including the transit of German warships through the Taiwan Strait.

Uranium Trade Probe: The United States is investigating whether China is aiding Russia’s nuclear industry by importing Russian uranium and exporting its own to the United States, despite a recent U.S. ban on Russian enriched uranium. Since the ban’s enactment, China has sent large shipments of uranium to the United States, raising concerns of a potential loophole. The United States is closely monitoring those imports to ensure compliance. The situation has alarmed U.S. uranium producers, who fear China could be circumventing the ban to gain a bigger role in global uranium markets while continuing to rely on Russian supplies.

Vehicle Ban: The U.S. Commerce Department hopes to ban connected vehicles with Chinese and Russian software or hardware by 2027 and 2030, respectively, due to national security concerns. The goal is to protect sensitive data and prevent potential remote control of vehicles. Although Chinese software in U.S. cars is minimal, Chinese hardware is more common, making the transition complex for automakers. The rule would apply to vehicles driven on public roads but exclude specialized ones such as agricultural equipment.

Ukraine: China continues to forward peace efforts to end the war in Ukraine. In late August, China’s Special Envoy for Eurasian Affairs Li Hui urged more countries to support the peace plan created with Brazil, Indonesia, and South Africa in May. Russian President Vladimir Putin endorsed China’s peace efforts by stating that China, Brazil, and India could serve as mediators. In a meeting with the Russian Security Council secretary on September 11, Chinese Foreign Minister Wang Li promised to promote “rational voices” to create the conditions for a possible political settlement in Ukraine. That message was echoed at Beijing’s Xiangshan Forum, an annual security conference in China, in speeches by Chinese Defense Minister Dong Jun and Foreign Vice Minister Chen Xiadong. Ukrainian President Volodymyr Zelenskyy dismissed Brazil and China’s efforts as “destructive,” claiming in an interview on September 12 that their peace initiative was disrespectful to Ukraine and its territorial integrity.

Tensions between China and the United States over the war in Ukraine also increased in September. On August 30, China’s Deputy Permanent Representative to the UN Geng Shuang called on the United States to “make real efforts to promote peace” at a meeting of the UN Security Council. Shuang later criticized the United States for escalating the conflict and disrupting international and regional peace by continuing to supply weapons and ammunition to Ukraine. In response, U.S. Deputy Secretary of State Kurt Campbell accused China of providing “substantial” support for Russia’s war effort that is being directed by top Chinese leadership. The U.S. Deputy Assistance Secretary of Defense Michael Chase raised the issue directly with Defense Minister Jun during talks on September 15. Those heightened tensions follow the United States’ imposition of sanctions in August on hundreds of Chinese entities for supporting Russia’s military efforts. On September 24, Ukraine’s Presidential Advisor Vladyslav Vlasiuk told reporters that China is supplying roughly 60 percent of the foreign made components for Russian weapons used in Ukraine." European intelligence indicates a subsidiary of a Russian state-owned weapons manufacturer has established a factory in China to produce long-range attack drones to use in the war in Ukraine, raising significant concerns among the United States and its European allies.