Power asymmetry between China and Russia

The deepening Sino-Russian relationship post Ukraine invasion raises concerns about Russia's autonomy and dependence on China.

The Russian invasion of Ukraine in 2022 has brought about a major shift in the world order. Not only did it bring about a stronger trans-Atlantic alignment vis-a-vis Russia, but it has also pushed the latter closer to China. Consequently, strategists around the globe have been preoccupied with the repercussions of such a partnership between the two countries. The deepening Sino-Russian relationship has become a subject of discussion in India as well. The concern that one of India’s most trusted partners now possibly shares an indispensable friendship with India’s primary adversary has instigated debate around the reliability of Russia as a security partner. In this context, the most recurrent question that is being raised is: has Russia become a junior partner of China? The answer to the question will determine the autonomy that the Kremlin can exercise when it comes to choosing between Beijing and New Delhi.

The two countries have a shared grievance against the dual hegemony of the dollar and the SWIFT messaging system central to the current global financial system. Their perpetual tension with the U.S.-led geopolitical order of the West puts them in a vulnerable spot — the effects of which have become more pronounced lately.

Following Russia’s invasion of Ukraine in 2022, the U.S. and its allies froze close to $300 billion of Russia’s forex reserves held overseas. China fears a similar threat in the event of a conflict with the West as around $770 billion of China’s $3 trillion forex reserves are currently held in U.S. treasuries. Further, in 2024, the West imposed a SWIFT ban on Russian financial institutions involved in transactions of dual-use goods or weapons. The U.S. also threatened secondary sanctions on third-country financial institutions involved in such transactions with Russia. Fearing secondary SWIFT sanctions, Chinese financial institutions have withheld transactions worth tens of billions of yuan from Russia.

Thus, the two countries have a joint objective to reform (upend) the existing financial and economic order. The two have tried to promote de-dollarisation and alternative payment settlement systems, albeit without much success. Even as the two settled more than 90% of their bilateral trade in local currencies in 2023, this amounted to less than a percent of current account transactions globally. Renminbi-denominated transactions in settling trade amount to only around 6% of global transactions, which were otherwise dominated by the dollar, euro, pound and yen.

China’s effort to promote the Cross-Border Interbank Payment System (CIPS) — its home-grown payment settlement system — is far from challenging SWIFT anytime soon, limiting its utility.

However, Russia’s isolation from the Western-dominated global financial system makes its need for an alternative much more urgent. China’s requirements aren’t as urgent despite its grievances, as Beijing is still very much a part of the system. This essentially leaves Russia at China’s mercy to set the pace for reforms. Furthermore, China alone has the diplomatic and monetary resources to mount a potential challenge to the Western-dominated financial order. Russia’s isolation and limited resources render it completely dependent on China to pull it out of its misery.

At first glance, China-Russia trade appears symmetric over the years. In fact, Russia maintains a modest trade surplus over China. However, the asymmetry becomes apparent when their bilateral trade is put in the wider context of their respective overall trade.