China in a fix over sanctions vs cheap Russian imports

China is willing to help out Russia in facing western sanctions brought on by the invasion of Ukraine but only to that extent where it itself does not face sanctions and its internal food security is not compromised.

Faced with the escalating Russia-Ukraine conflict, President Xi Jinping sounded a rare alert, calling on his country to produce more food to reduce dependence on foreign markets. "The rice bowls of the Chinese people must be filled with Chinese grain."

Having faced a number of famines in the past that killed millions, China has serious concerns about food shortage. It wants to produce 95 per cent of the grain it consumes. The current war has made it more apprehensive. The government is currently undertaking an exercise to ensure maximum arable land is available right away from growing foodgrain.

But now the war has put China in a quandary. Last year, China imported a third of its annual corn requirement from Ukraine instead of the United States. Coming April is when the new crop is sown in Ukraine and China has no idea if it can import corn this year too.

On the other hand, both Ukraine and Russia are major wheat producers. Just before Russia invaded Ukraine, China had placed a massive order for Russian wheat. Previously, questions over the quality of wheat and the presence of pests in wheat from certain regions of Russia affected bilateral trade in the commodity.

But with the United States openly challenging Russia over Ukraine in the buildup to the war, China took clear sides with Russia, lifting all restrictions on Russian wheat and barley from all regions.

Now it wants to ensure that it does not end up also inviting sanctions for helping Russia. China is well aware of how bad the sanctions can be; it had a taste of the sanctions when they were enforced against Huawei and several other Chinese firms.

However, the lure of cheaper energy, in the form of gas, coal and oil, and low-cost wheat from Russia far outweighs the fear of sanctions. China has decided to make deals with Russia as long as it can.

The South China Morning Post reports that food security in times of the current way weighs heavily on the government's mind. "China is sounding the alarm about 'unprecedented' challenges facing the nation's food security this year while prioritising domestic grain production and soybean self-sufficiency in its annual blueprint for rural policies. The concerns were outlined this week in the year's first joint policy statement issued by the Central Committee of the Communist Party and the State Council, the nation's cabinet. Atop the to-do list is the need to ensure that there is abundant year-round arable land for grain to maximise output, particularly in the face of climate-related output disruptions."

Trade between Russia and China is growing steadily in recent years. In 2021, it hit a high of USD 147 billion, up 36 per cent from the previous year. Both countries recently decided to increase the trade levels to USD 250 billion by 2024.

China is also "currently the single biggest market for Russian energy exports such as oil, gas and coal". China is "Russia's largest coal buyer, and the two countries agreed on a new deal worth more than USD 20 billion - just a week before the Ukraine invasion".

The European Union imports nearly 45 per cent of its energy requirements from Russia. But it may diminish following the sanctions. That gives China an opportunity to divert that oil trade to itself.

In 2021, Russia was China's second-biggest oil supplier and third-biggest gas supplier, with "exports reaching USD 41.1 billion and USD 4.3 billion, respectively".

Analysts say that "over the longer term, China may want to boost imports of Russian gas to try to reduce its dependence on coal in order to meet targets for cutting greenhouse gases".

For the record, since sanctions were imposed in 2014 after Russia annexed Ukraine's Crimea, "bilateral trade has expanded by more than 50 per cent and China has become Russia's biggest export destination".

A UK-based media report says exports of Russian oil and gas to China have steadily increased with "Russia being China's second-biggest oil supplier after Saudi Arabia, with volumes averaging 1.59 million barrels per day last year, or 15.5 per cent of Chinese imports". Just under half of the oil supply flows into China via the 4,070-km East Siberia Pacific Ocean pipeline that was financed by Chinese loans. Russia is also Beijing's third-biggest gas supplier, "exporting 16.5 billion cubic metres (bcm) of the fuel to China in 2021, meeting about 5 per cent of Chinese demand".

The war is really worrying both Russia and China over their long-term agreements on the supply of oil. Reuters paints the grim picture: "Supplies via the Power of Siberia pipeline, which is not connected to the network of westbound Russian gas pipelines, began in late 2019 and are due to rise to 38 bcm a year by 2025, up from 10.5 bcm in 2021, under a 30-year contract worth more than USD 400 billion.

Russia aims to build a second gas pipeline, Power of Siberia 2, with capacity for 50 bcm a year to run via Mongolia to China." What happens if the war lingers is anybody's guess.

Other food exports from Russia to China include fish, sunflower oil, rapeseed oil, poultry, wheat flour and chocolate. China is also a "huge buyer of timber from Russia's Far East, with imports of timber and related products worth USD 4.1 billion last year".

( With inputs from ANI )

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