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Behind the Scenes: China’s Increasing Role in Russia’s Defense Industry [1]

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Date: 2024-05 

Instead, Chinese exporters are openly engaging in trade with Russia, even in areas subject to export controls, while few other countries have been willing to report trade data in circumvention of the Western restrictions. That said, third party financial intermediaries have begun to play a significant role in facilitating China-Russia payments, indicating Beijing’s potential sensitivity to the risk of secondary sanctions on financial institutions as compared with goods exporters.

One important question is whether the Chinese government is directly involved in such transactions with Russia or whether private firms have been largely responsible for evading sanctions and export controls. While this distinction matters little in terms of the ultimate effect on Russia’s defense base, it could affect how U.S. policymakers respond to strengthening China-Russia defense ties.

Previously, Washington maintained that Beijing was not providing lethal aid to Moscow on a “systematic” basis. When meeting with Chinese Vice Premier He Lifeng in November 2023, U.S. Treasury Secretary Janet Yellen stated that private companies, not Chinese officials, were responsible for sanctions evasion.

Since then, however, Beijing has done little to prevent such transactions, given the rise in dual-use trade with Russia. In fact, U.S. officials have begun to suggest that Beijing is now actively encouraging these transactions. Departing from prior assessments, U.S. officials recently said that China was “taking a systematic effort to support Russia’s war effort.”

Increasingly deep links between the Chinese party-state and private firms make it difficult to imagine a scenario in which Beijing would not have foreknowledge of dual-use transactions with Russia, especially in highly sensitive domains. The fact that China’s General Customs Administration willingly reports trade figures with Russia indicates Beijing’s lack of regard for the Western export control regime: something Chinese officials have often criticized as “long-arm jurisdiction” by the United States.

U.S. officials have warned repeatedly in recent weeks that Chinese entities found to be conducting or facilitating transactions in support of Russia’s defense industry will face blocking sanctions. Washington has already added over one hundred Chinese entities to the Treasury Department’s Specially Designated Nationals list and the Commerce Department’s Entity List since Russia’s invasion of Ukraine. Given China’s continued support for the Russian military, more and more Chinese exporters and financial intermediaries will likely face secondary sanctions and export controls going forward.

Beyond the threat of punitive measures, the United States has limited ability to influence Beijing’s calculus on the Russia-Ukraine war. From Beijing’s perspective, the war has helped divert Western resources and attention away from the Indo-Pacific. Chinese officials perceive the United States as being bent on strategic competition with China, and as a result, see little upside in heeding U.S. demands and foreclosing support for Russia.

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[1] Url: https://carnegieendowment.org/russia-eurasia/politika/2024/05/behind-the-scenes-chinas-increasing-role-in-russias-defense-industry?lang=en&center=russia-eurasia

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