When the Russian invasion of Ukraine began, the immediate response of all major nations, including Erdogan's Turkey, was to reject Putin’s open aggression. Only two countries hesitated: China and Iran.

While Beijing and Tehran have long standing disputes with the West, China’s diplomatic twisting and its media shifting blame on NATO, the U.S. and even Ukraine, suggests that President Xi is considering how it can benefit from the war.

While the initial sanctions issued by Western governments were generally perceived as ineffective, a strangle hold on the Russian economy has steadily been growing. Germany has already ‘taken one for the team’ by suspending certification of the Nord Stream 2 pipeline, built to transport gas from Russia to Germany, and the UK recently announced the cancelling of a power line between France and England in part because it was financially backed by Russian born (now also UK nationals) Alexander Temerko and Viktor Fedotov.  

More powerful still, have been moves to isolate Russia's central bank. This would prevent it from deploying its $630bn international dollar reserves to support the rouble and offset the effects of the war.

This could have a catastrophic impact on Russian business, the economy, and the lives of individual Russians. The Russian finance ministry has already warned people against withdrawing large sums of cash, as a run on even major banks could have dire consequences, especially without international financial systems and support.

Over the last few days, Western leaders have also agreed to block Russian access to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system which links 11,000 banks and institutions in more than 200 countries.

While this would delay or even threaten Russia’s ability to payback its debts to several European nations, the impact of withdrawing access to SWIFT may be worth the pain, with Alexei Kudrin, Russia's former finance minister, recently suggesting that being cut off from Swift could shrink Russia's economy by 5%.

However, some analysts fear that the longer lasting impact would be to drive Russia into a trading partnership with China – especially considering that China already has its own payments system.

Called CIPS (Cross-Border Interbank Payment System) the Chinese financial messaging structure is far more established that the Russian National Payment Card System, known as Mir, which is not yet widely accepted.

At first, many feared that the Xi administration was keen to undermine the dominance of the global US dollar-based financial architecture by supporting Russian/Chinese cooperation. But China has clearly not endorsed Moscow’s aggression. China’s top diplomat, Wang Yi, clarifying to the Munich Security Conference that, “The sovereignty, independence and territorial integrity of any country should be respected and safeguarded. Ukraine is no exception.”

Moreover, the messages emanating from Beijing may hint that China is hoping to gain from the situation.

The reasons for this could be threefold:

1.       China may be unwilling to threaten import-export relationship with the rest of the world. This balance of trade is huge, whereas trade between China and Russia is minimal in comparison.

2.       Beijing may wish to support its economic interests in Ukraine. Ukraine’s trade with China in 2020 was at $15.42bn following major ‘belt and road’ investments.

3.       Chinese/Russian relations have always been strained and highly suspicious. The two countries are not in any close alliance, and early signs are that China is now reluctant to take Russian oil.

China may even wish to take on a role as mediator between Russia and the West. Possibly using its economic strength as a tool to calm down the conflict.

Doing so would be a major achievement for President Xi, showing himself to be a man of peace, showing U.S. global influence as weakening, and gaining Chinese influence in Kyiv – directly on the doorstep to Europe.

At present, the West’s reaction (despite repeated warnings of a Russian invasion) appears chaotic and uncoordinated. While politicians are heading towards a consensus, it is taking longer than perhaps the citizens in Dontesk and Lviv can perhaps afford.

Ultimately, a situation could develop where Russia becomes globally isolated and economically cripples, the EU is shown as toothless to support nations even on its own borders, and the U.S. is seen as impotent to stand up to aggression against its allies.

When it comes to the conflict in Ukraine, maybe China will be the only winner.

Photo credit: FreeImages, Artur Voznenko, Erol Ahmed, Quinten de Graaf on unsplash, & Freeimages