Lessons from ‘economic warfare’ on Russia

The unprecedented economic sanctions imposed by Western countries on Russia for its invasion of Ukraine have offered Beijing a rare opportunity to watch modern “economic warfare” in action.

China’s immediate reaction was to try and limit damage from the sanctions. While the country will certainly not join the economic punishment of Russia at a state level, it will tolerate its state banks taking pragmatic measures to comply with certain sanctions.

Beijing is unlikely to write blank cheques to Moscow, and any help given to Russia will be decided after calculating costs and returns. After all, given China’s deep financial and economic relations with the rest of the world, it is not in its best interests to “over pay” when it comes to Russia.

One possible takeaway for China is that the crisis has offered Beijing a chance to review its economic vulnerabilities. For instance, the central bank has always regarded putting its foreign exchange reserves into US dollar bonds as the best way to ensure “safety”, but the freeze on Russia’s central bank assets could force Beijing to reconsider the policy.

The economic punishment imposed on Russia by governments, and a growing list of Western private businesses, may further convince Beijing that its precautionary measures of keeping foreign businesses out of key public services were prescient. Hence, China will have more reasons to fix its weak links to achieve self-sufficiency in technologies from operating systems to semiconductors.

But it doesn’t mean China will speed up preparation for possible future economic warfare. On the contrary, the economic pain being experienced by Russia is a powerful reason for China to avoid getting into a similar situation.

China’s “reform and opening up” policy has helped the country’s rise from an impoverished rural nation into a global economic powerhouse. It is a great achievement that shouldn’t be undone.

China may tweak its perception of the West. Beijing has for years seen the world as luan, or chaotic, as a result of weakened leadership from Western countries, notably the United States.

However, the united reaction from the US, European Union, Britain, as well as their allies from South Korea to Singapore, against Russia, has shown that the shared value and recognition of international order remain strong.

Therefore, in the mind of China, the trend that the West is in decline as the East is on the rise still stands, but the process may take a very long time with many twists and turns along the way.