China Is Studying Russia’s Sanctions Evasion to Prepare for Taiwan Conflict
Officials report back to Beijing with lessons it can use in the event of war and Western penalties
By Georgi Kantchev and Lingling Wei
The Wall Street Journal Updated Dec. 1, 2024
China has been supporting Russia’s economy since the start of the Ukraine war by buying its oil while supplying it with everything from microelectronics to washing machines.
Meanwhile, Beijing has been getting its own strategic benefit: a real-world case study in how to circumvent Western sanctions.
An interagency group, set up by China in the months following the full-scale invasion, has studied the impact of sanctions and produced reports regularly for the country’s leadership, according to people familiar with the matter. The goal is to draw lessons about how to mitigate them, particularly in case a conflict over Taiwan prompts the U.S. and its allies to impose similar penalties on China, the people said.
As part of the effort, Chinese officials periodically visit Moscow to meet with the Russian Central Bank, the Finance Ministry and other agencies involved in countering sanctions, the people said.
The Chinese study effort, which hasn’t previously been reported, is emblematic of the new age of economic warfare unleashed by Russia’s invasion of Ukraine, where the lines between economic policy and geopolitical strategy are increasingly blurred. That trend is only likely to be amplified by Donald Trump’s second presidential term, where he plans to turbocharge the use of tariffs as a tool for negotiation and coercion.
Russia’s economy has been surprisingly resilient throughout the Ukraine war, but it has shown fresh signs of cracking under Western pressure recently. In the past week, the Russian ruble plunged to its lowest point since the early days of the conflict after the U.S. imposed new banking sanctions.
Moscow owes much of its economic durability to its oil exports and its cooperation with Beijing, as the leaders of both countries seek to challenge the U.S.-led world order. The group that was established shows how deep that collaboration has been, and that Beijing’s support hasn’t entirely been a one-way street with Moscow as the beneficiary.
“For the Chinese, Russia is really a sandbox on how sanctions work and how to manage them,” said Alexander Gabuev, the director of the Carnegie Russia Eurasia Center, who focuses on China-Russia relations. “They know that if there is a Taiwan contingency, the tool kit that will be applied against them will be similar.”
People close to Beijing’s decision-making cautioned that the study group doesn’t mean the country is readying an invasion. Rather, Beijing is preparing for the “extreme scenario” of an armed conflict and its economic repercussions, the people said.
The Chinese Foreign Ministry said that the country “has always been committed to conducting normal exchanges and cooperation with all countries in the world, including Russia, on the basis of equality and mutual benefit.”
The Russian Central Bank and the Russian Finance Ministry didn’t respond to requests for comment.
One area of particular concern for China is its more than $3.3 trillion in foreign-exchange reserves, the world’s largest. The moves by the U.S. and its allies to freeze Russian assets abroad following the Ukraine invasion prompted Beijing to more actively look for ways to diversify its stockpile away from dollar-denominated assets, such as U.S. Treasury bonds.
In a sign of heightened top-level attention on sanction risks associated with the reserves, China’s leader Xi Jinping paid a rare visit to China’s State Administration of Foreign Exchange in the fall of 2023, the people close to Beijing’s decision-making said. During the visit, Xi raised the question of how to safeguard the reserves, the people said.
The Chinese interagency group on Russian sanctions reports to He Lifeng, China’s vice premier overseeing economic and financial affairs. He, who has a direct line to Xi, has been the chief architect for ringfencing China’s economy from Western sanctions.
Beijing is “very interested in practically everything: from ways of circumventing them to all sorts of positive effects, such as incentives for the development of domestic production,” said a person familiar with China’s outreach to Russia on sanctions.
The Russia-China relationship has blossomed since the invasion. Bilateral trade reached a record $240 billion last year, juiced by Russian oil sales. Around 60% of newly sold cars in Russia are Chinese, according to Russian data provider Autostat.
But the relationship has been lopsided: While China accounts for around a third of Russia’s overall trade, Russia makes up a small part of China’s. Much of Russia’s exports is made up of oil and natural gas that China can get elsewhere.
That means that, if the tables were turned, Moscow wouldn’t be able to provide as much support to China’s economy. That is why Xi has been directing officials to promote trade and deepen economic ties with Russia to achieve a greater “internal driver” for the relationship, according to the people close to Beijing’s decision-making.
While the U.S. has already imposed sanctions on China, including export restrictions on advanced semiconductors and measures against telecommunications giant Huawei, a crisis over Taiwan could lead to an economic war of a different magnitude.
Full-scale financial sanctions by the West would disrupt the country’s financial system, interrupt trade and put $3.7 trillion in Chinese overseas bank assets and reserves at risk, according to a report last year by the Atlantic Council and Rhodium Group think tanks.
Russia reacted to Western sanctions by redirecting commodity flows, injecting massive fiscal stimulus into the economy and evading export controls via neighboring countries. These measures stabilized the Russian economy and enabled Moscow to continue prosecuting its war, even as sanctions have hampered the long-term growth outlook for the country.
One major lesson for China from Russia’s experience has been the importance of preparation, analysts say. Before the war, Russia had sought to diversify its foreign reserves, de-dollarize its economy and build domestic financial plumbing. Even though its success was mixed, those moves helped shield the Russian economy and buy it time to adapt.
Another lesson for China is the value—and limits—of coalitions. The U.S., the U.K., the European Union and other allies worked in unison to expel major Russian banks from the Swift financial network and impose an oil price cap, while Russia countered by strengthening ties with China, Iran and North Korea.
“China learned that the West can get their act together on sanctions when they have to,” said Agathe Demarais, senior policy fellow for geoeconomics at the European Council on Foreign Relations. “Meanwhile, Russia has found its own allies.”
At the same time, disagreements in the Western coalition, especially over oil sanctions due to inflation concerns, have hampered their response. And with China having a much larger footprint in the world economy, the global costs of sanctions are expected to be much higher. At least $3 trillion in trade and financial flows—roughly the equivalent of France’s annual gross domestic product—would be at risk of disruption, according to estimates by the Atlantic Council and Rhodium Group.
“One of the lessons from the sanctions on Russia is that once you start imposing them on a large economy there are economic and political ramifications at home,” said Edward Fishman, a former State Department sanctions official and author of the forthcoming book “Chokepoints: American Power in the Age of Economic Warfare.”
China, a major manufacturer, also learned from Russia’s experience about the potential pitfalls of being connected to global supply chains.
For years, Russia had tried—and mostly failed—to make its economy self-sufficient. When sanctions hit, Moscow found itself deeply reliant on Western parts it suddenly couldn’t get. That led to shortages and temporary shutdowns of whole industries, such as carmaking. When they later rebooted, Russian carmakers initially made cars without air bags and other safety features because they didn’t have the parts they needed.
“Sanctions can be really disruptive for any production sector that is enmeshed in global supply chains,” Fishman said. “That makes China highly vulnerable.”
How Russia found ways around such restrictions, however, provides yet another lesson for Beijing, even though China’s vastly larger economy would require a far greater evasion effort.
To bypass the oil price cap, for example, Moscow uses a network of tankers not owned by Western countries or insured by Western companies. More than half of Russia’s seaborne oil is now transported with this so-called shadow fleet, analysts say, and the U.S. and its allies have been racing to target vessels with sanctions.
Meanwhile, Russia found a route through ex-Soviet republics to acquire banned Western goods from luxury cars to dual-use goods with military applications such as microchips in what has come to be known as the “Eurasian roundabout.”
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Lingling Wei at Lingling.Wei@wsj.com
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