The relationship between China and Russia has been under scrutiny by many since Russia marched its army into Ukraine some weeks ago. China appears to be standing with Russia against much criticism from many in the global community. Russia speaks of reinforced friendship and strong relationships between the two countries. At first glance, this may seem to be the case. But looking at historical data, this relationship is a volatile one. China and Russia are new old comrades, bound by a shared history of early communism.
However, the relationship went quickly southward after the Communists on both sides took on power. All the while, China and Russia have long been trading partners, with Russia supplying raw materials like metals, crude oil, natural gas, agriculture. China is Russia’s biggest trading partner, exporting value-added products like construction machinery, manufacturing equipment, steel, electronics and more. The most recently proclaimed, stronger-than-before friendship between the country leaders seems mainly rooted in their identified common nemesis: the West, in particular the USA. At the same time, China today is deeply invested in European countries because several of her large state-owned companies have invested millions into advanced manufacturing in Eastern Europe over the decade.
For years now, China’s government has pursued a strategy to wean the country of its predominant coal consumption by replacing dirty coal with perceived cleaner alternatives like oil, gas, nuclear as well as renewable energy sources like hydro, wind and solar. Russia plays an important role in this strategy as it is the second-largest source of oil imports for China. In return, China is a key source of investment in Russia’s energy projects, including the Yamal liquefied natural gas plant in the Arctic Circle and the Power of Siberia pipeline at $55 billion, the biggest gas project in Russia.
Gas and petrol prices in China have been reported to have risen with the beginning of Russia’s invasion of Ukraine. To ease some of the dependence on Russian oil, Chinese refining companies have been trying to diversify oil sources, with some companies boosting purchases of discounted Iranian oil in early 2022. There are signs of reduced purchases of oil cargoes for April and May due to soaring crude and freight costs. At the same time, a supply squeeze seems unlikely as with high pump prices and China locking down whole cities and discouraging long-distance driving, petrol sales have started to slow. In addition, there is a likelihood that China, among others, may in the mid-term benefit from further Russian oil and gas embargoes discussed between the USA, Europe, Australia, and supported by Asian importers such as Japan and South Korea. China may be likely to soak up more distressed Russian Liquid Natural Gas (LNG) at discounted prices.
This should, however, not change China’s current energy strategy. What had far more impact on the government’s recently adjusted energy policies were the effects of the devastating 2021 energy security crisis. China tracks her transition to a low-carbon economy with such indicators as the intensity of energy use and carbon emissions, i.e., energy consumption or carbon emissions per unit of production. Prior to the energy security crisis, the central government had set an overall cap on energy consumption for each province as a driver to save energy. This led to shortages in regions where local governments were rationing energy consumption to meet targets, which in turn led to the standstill of factories, left households out in the cold and induced heavy economic losses. And with rising electricity demand, based on accelerated post-Covid production, coal and gas prices were already soaring even prior to the Russian-Ukraine war.
This Post was submitted by Climate Scorecard Country Manager Annette Wiedenbach
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