This time I would like tentatively to share the insights of Dr. Scott Kennedy, a senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington.
His theme is: China’s Economy and Ukraine: All Downside Risks.
The potential short-term risks for China’s economy emanating from the Ukraine crisis are all manageable, but the longer the time horizon, the greater are the dangers to China’s economy and its international influence.
There are almost no scenarios in which China comes out net ahead.
China’s trade ties with Russia and Ukraine are not insignificant, valued in 2021 at $147 billion and $19 billion, respectively.
Some portion of this commerce will certainly be impacted by both the conflict itself as well as subsequent sanctions, which will result in Chinese companies in these sectors taking a loss.
Chinese exports to Russia, mostly finished goods, will likely suffer.
This includes tech firms such as Xiaomi, Lenovo, and SMIC, which have substantial sales to Russia.
Imports will be equally tricky.
It looks like China has restored trade in wheat, but it’s not clear how much additional latent demand there is in China, and domestic growers in the country’s northeast won’t be thrilled.
Some commodity imports from Russia, such as potash, aluminum, and nickel, may be cut off due to sanctions, leading to higher producer prices in China.
One of the biggest variables is natural gas.
China may have smartly secured new supplies from Russia, but sanctions could make natural gas supplies and prices more volatile going forward.
And greater Russian imports may also become a disincentive to implementing a more robust energy transition, which has been a major Chinese economic and diplomatic goal.
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