China is growing weary. By the third year of the war, efforts to organise peace talks between Russia and Ukraine have slipped not just to the second but to the third tier of China’s foreign policy agenda. Within the vast structure of China’s Ministry of Foreign Affairs, the ‘Ukrainian crisis’ remains the responsibility of a single official—Li Hui, the government’s special representative for Eurasian affairs. Meanwhile, the foreign minister, the prime minister, and the president are preoccupied with a more pressing issue: Donald Trump’s new presidential term.
China’s peace plan
Three years into the war, China continues to uphold its neutrality, refraining from direct military support for either Russia or Ukraine while simultaneously expanding bilateral trade with both countries.
On 2 March 2022, during a special session, the UN General Assembly adopted a resolution condemning Russia’s operation in Ukraine. Russia itself, Belarus, North Korea, Eritrea and Syria voted against it, leaving Russia with no allies in the war, its actions supported publicly only by North Korea’s leader. China abstained and, a year later, began forming a large coalition of nations advocating for negotiations.
The situation itself is paradoxical. In February 2022, China appeared content with issuing a formal statement calling for peace talks while continuing normal trade relations. It wasn’t until a year into the conflict that Beijing took its first diplomatic steps, publishing ‘China’s position on the political settlement of the Ukraine crisis’. The document highlighted the necessity of halting hostilities and resuming peace talks.
China’s all subsequent actions were aimed at avoiding direct confrontation with the US and EU countries, which strongly support Ukraine. Apparently, many expected Beijing to pressure Russia’s political leaders into freezing the conflict under Xi Jinping’s pressure. The very possibility of implementing such a plan poses many questions: practice has shown that economic sanctions have little impact on immediate political solutions.
China chose a different path out of the situation—neither condemning nor supporting anyone. Instead, it used the European war as a pretext to consolidate the countries of ‘Global South’, presenting itself as a responsible global actor and a judicious partner for negotiations. In May 2024, Brazil and China released the ‘Common Understandings Between China and Brazil on Political Settlement of the Ukraine Crisis’. This six-point document, often mislabelled in the media as a ‘peace plan’, urged the international community to support and join the initiative, playing a constructive role together in promoting de-escalation and peace talks. In August 2024, China’s special representative for Eurasian affairs Li Hui said that the initiative had garnered support from ‘over 110 countries’.
On 27 August 2024, Li Hui held a briefing summarising the outcomes of the fourth round of shuttle diplomacy on the Ukraine crisis, following visits to Brazil, South Africa, and Indonesia.
On 27 September, on the margins of the UN General Assembly in New York, China, Brazil and the countries of the ‘Global South’ announced the creation of an open platform for resolving the conflict in Ukraine named ‘Friends of Peace’. The joint communiqué was signed by Algeria, Bolivia, Brazil, China, Colombia, Egypt, Indonesia, Kazakhstan, Kenya, Mexico, South Africa, Turkey and Zambia.
Ukraine’s President Volodymyr Zelensky, speaking at the UN General Assembly, said that ‘any parallel or alternative attempts to achieve peace are, in fact, efforts to achieve a lull, not an end to the war’. In September, Russian Deputy Foreign Minister Sergei Ryabkov said Russia welcomed the China-Brazil peace initiative. Russian President Vladimir Putin said that Russia familiarised itself with the China-Brazil initiative to resolve the conflict in Ukraine only after its public release, describing it as a ‘solid basis’ for attempts to seek peace.
China understands that a diplomatic solution to the conflict can only occur if both Russia and Ukraine request negotiations. If the world avoids nuclear escalation, negotiations will begin sooner or later. The ‘Friends of Peace’ platform does not aim to pressure either side of the conflict but instead calls for a comprehensive and lasting resolution to the war through diplomatic and political means grounded in the UN Charter.
The situation looks perplexing for both China and the ‘Global South’. The countries of Europe appear unable to resolve their mutual problems on their own, and the US becomes an active actor in the military conflict indirectly, providing not only financial aid, but also supplying arms to one of the warring parties.
At this moment, what is needed from all countries is an unequivocal condemnation of Russian aggression and support for Vladimir Zelensky’s ‘peace formula‘. On 16 June 2024, the Global Peace Summit, organised by the Swiss Government at the request of the Ukrainian authorities, concluded in Bürgenstock. Delegates discussed three of Zelensky’s ten proposed points: security at nuclear facilities, food security, and the exchange of prisoners of war and the return of Ukrainian children taken to Russia. The two-day summit’s final declaration was supported by 80 countries and four organisations. The second peace summit, scheduled to be held in November, did not materialise.
A paradoxical situation has emerged: nations of the ‘First World’ can no longer resolve their conflicts within a relatively small geographical space while the position of the ‘Third World’ countries is becoming, if not decisive, at least important evidence that the global order of the past decades is no longer working. This raises a fair question: are we discussing Europe’s security architecture or is there a need for new global rules?
Eventually, even representatives of France and Switzerland joined the ‘Friends of Peace’ group, much to the bewilderment of Russian Foreign Minister Sergey Lavrov.
Remarkably, Russian propagandists and Ukrainian politicians occasionally find themselves in rare agreement: China is pursuing these initiatives to support Russia. Yet, China is leveraging the military conflict in Europe to build a coalition of Global South states, increase supplies to Ukraine and Russia, and purchase cheap energy resources from Russia and agricultural products from Ukraine. Peace talks are, undoubtedly, only a matter of time. China has prepared the stage and moved on to more pressing concerns.
Russia-China trade in 2024
In 2022, the Russia-China trade turnover increased by 29.3% year-on-year to USD 190.27 billion. In 2023, trade turnover grew by a further 26.3%, hitting USD 240.11 billion—and, as of today, this appears to be the ceiling for further growth.
We have previously written about the political implications of the surge in Russian oil exports to China. According to Russian Deputy Prime Minister Alexander Novak, China’s share in Russia’s exports of oil and petroleum products in 2023 was 50%, while India accounted for 40%. Although the proportions between India and China will undoubtedly shift by the end of 2024, the list of key importers and their balance is unlikely to change dramatically.
From April to September 2024, Russian oil exports to India increased by 2.5%, keeping Russia’s position as India’s largest oil supplier with a 39% market share. From January to October, Russia also boosted its oil exports to China by 2.2% year-on-year, reaching 90 million tonnes. The value of these supplies amounted to USD 52.794 billion.
Between January and October, the trade turnover between Russia and China increased by 2.8% year-on-year, hitting USD 202.2 billion. Russian exports rose by 1.1%, to USD 108.07 billion, while supplies from China grew by 4.7%, to USD 94.14 billion.
The dynamic growth in trade turnover between Russia and China is slowing because the previous drivers of expansion are no longer working. The structure of trade turnover remains unchanged: Russia’s exports to China include energy resources (oil, gas and coal), which account for almost 90% of exports, as well as metals, timber, seafood and agricultural products. Meanwhile, imports from China consist of cars, computers, smartphones, toys and footwear. Only the growth in mineral supplies has allowed Russia to maintain a positive current account balance with China.
What could significantly transform bilateral trade?
- Massive entry of Chinese investors and localisation of production
On 1 October 2024, the decision of the Ministry of Industry and Trade on a phased increase in recycling fees for cars came into force, significantly raising the coefficients for cars imported from abroad for resale in Russia. The Ministry’s goal is clear: to compel automotive companies to localise production in Russia. As of today, Haval (Great Wall Motor) is the only Chinese brand that has signed a special investment contract (SPIC) with the Ministry of Industry and Trade to localise production. The Haval manufacturing plant opened in the summer of 2019.
Whether Chinese car manufacturers will agree to localise production in Russia is a debatable issue. The Russian market is relatively small and carries numerous risks, including secondary sanctions. According to 2020 data, Great Wall invested 42.4 billion roubles in localisation of production in Russia. Considering the unstable rouble exchange rate and rising inflation, the initial investment required for localisation in 2025 should be at least twice as high, and return on investment with such market volumes and the economic situation inside the country is even more difficult to predict. However, domestic demand in China is stagnant, the problem of overproduction remains unsolved, and external markets—including the US and the EU—are not averse to imposing additional protective tariffs. In this case, redirecting some capacity for the production of internal combustion engine vehicles to Russia looks like a viable solution in the current situation for China.
- Establishing new joint energy projects
Mongolia has not included the ‘Power of Siberia-2′ gas pipeline project in its national development plan until 2028. The Russian Federation had planned to build the pipeline through Mongolian territory to transport gas to China. As a result, the laying of the pipeline—personally promoted by Vladimir Putin—will not take place for at least the next several years. China is still satisfied with the current volumes of supplied energy carriers. Some equipment for maintaining these supplies is already being imported from China, but new projects require money, and China is not yet prepared to pay.
- Major investment projects
The number of actual Chinese investments is difficult to estimate. Firstly, since 2022, Russia’s Central Bank has ceased publishing statistics on foreign direct investment in Russian companies. Secondly, most analysts agree that the volume of Chinese investments in Russia—which were modest even before the coronavirus pandemic—has not increased since 2022, despite numerous statements from the Russian-Chinese intergovernmental commission on investment cooperation. According to the commission data, its portfolio currently includes 83 investment projects (10 of which were added in 2022−2023), with a declared investment volume of approximately USD 200 billion across 24 Russia’s administrative regions and five Chinese provinces.
However, production chains—including component manufacturing and related production—are underdeveloped in Russia, making production in China more economically justified. As a result, the opposite trend often occurs: Russian companies are more eager to invest in China. For example, on 24 October 2024, RUSAL, one of the world’s largest aluminium producers, announced that it had signed an agreement to acquire a 30% stake in Chinese steelmaker Hebei Wenfeng New Materials (HWNM). This deal secures RUSAL access to alumina and supply of critical raw materials.
The key to attracting investment from China lies in macroeconomic and geopolitical stability without the risk of secondary sanctions. For the foreseeable future, this remains a challenge for the Russian market.
- Transport and logistics infrastructure
The Russian transport and logistics infrastructure continues to be a significant obstacle to the growth of trade turnover. Issues with modernisation of ports and transport corridors significantly increase costs and delivery times. For example, there are regular queues at the Zabaikalsk road border crossing point due to incomplete construction of infrastructure for trucks. Transport infrastructure is a major focus of Chinese investment, but China is certainly investing in infrastructure in border areas to boost cargo flows and trade. Examples include the construction of the Russia-China cross-border railway bridge Nizhneleninskoye-Tongjiang, the Bely Rast terminal and logistics complex, the Europe-Asia telecommunications highway, a road bridge and cable car between the cities of Blagoveshchensk and Heihe.
- The issue of cross-border payments
In March 2024, a total of 80% of settlements between Russia and China were suspended due to Western sanctions, severely impacting trade and commercial relations. Fearing potential US restrictions, 98% of Chinese banks, including regional ones, began refusing to accept direct payments from Russia. In November 2024, the Bank of China increasingly began blocking yuan-denominated transfers from countries its compliance department deemed potentially linked to shipments to Russia. Due to fears of secondary sanctions, Chinese banks only want to engage with banks they deem safe, and banks in China continue to restrict the ability to transfer funds even between accounts held by the same customer. In coms cases, Chinese banks cite the need for special authorisations to process payments from foreign to domestic bank accounts.
On 21 November 2024, the US Treasury Department’s Office of Foreign Assets Control announced a new large-scale package of restrictions targeting Russia’s financial sector. More than 50 banks, including Gazprombank and VTB Shanghai—one of the main channels of cross-border settlements for business—have been added to the blacklist of citizens and organisations, prohibiting all US individuals and companies from doing business with them. Notably, VTB Shanghai is the only bank in China facilitating yuan transactions originating in Russia.
Since the beginning of 2024, up to 70−80% of Russian payments have been rejected, and about half of cross-border payments have been processed through intermediaries and alternative routes.
We will not assess the numerous initiatives to introduce cryptocurrencies, stablecoins, and settlement platforms within international organisations: all these projects failed to gain traction in 2024. Russia has been unable to propose an alternative settlement system that could be attractive at least to its BRICS partners.
China does not put its banks at risk and continues to keep Russian banks at arm’s length. Could China have acted differently and worked more actively to create a joint platform with Russia? Certainly. However, such risks offer no long-term benefit. China needs dollars and access to SWIFT, not roubles and the Bank of Russia’s Financial Messaging System.
The limits of friendship: China — a partner, not an ally
By the end of 2024, the level of support China could afford to provide had reached its maximum threshold: any further moves could negatively impact Chinese companies and banks, and expose certain industries to the risk of secondary sanctions.
Sanctions are working. They also influence the strategies of the two countries. Over the first two years, China derived remarkable profits from the sanctions regime, increasing its imports of energy carriers and replacing European manufacturers in entire market niches, from cars to other goods. It appears that a certain ceiling has been reached in the growth of trade turnover, which can only be surpassed trough large-scale, groundbreaking initiatives like those discussed earlier. Such new steps, however, come with growing costs for China itself, leading not only Chinese business but also financial institutions to question the feasibility of such a rapprochement.
Every partnership has its objective limits. Over the past two years, no significant bilateral binding documents have been signed, meaning that both China and Russia still maintain a high degree of autonomy in foreign policy, economic, military and other decisions, occasionally coordinating their positions in the UN Security Council or other international organisations. To put it more bluntly, China owes nothing to Russia and Russia owes nothing to China. The growing economic and political disparities on the global stage will increasingly push the political leadership of the two countries further away from any long-term formal alliances or joint projects.
China is preparing for another Donald Trump presidency and a new wave of trade wars, initiated by Trump himself. The local military conflict in Europe between Russia and Ukraine, as well as Russia’s payment difficulties caused by secondary sanctions, were not a priority in the past, and have now slipped even further down the agenda.
There moment will come when China’s political leaders, with ceremoniousness and utmost politeness, will ask Russia’s political elites, ‘What are you willing to offer in return, besides oil and gas?’ By that time, Russian diplomacy must ensure that there are alternative options beyond China or be ready to share military technologies more actively, lower the entry barrier for Chinese companies, or perhaps even become part of ‘greater China’.
