Russia’s success in dealing with Western sanctions through de-dollarization and supporting trading partners in Asia may be a valuable lesson for China as pressure to “de-risk” (the policy of the West to diversify supply chains so that it is not dependent on Chinese exports that shaped the so-called trend of de-globalization).
Russia has provided many valuable experiences from which China can learn to deal with financial and economic sanctions in the future.
Despite the war in Ukraine and unprecedented and escalating sanctions, Russia’s economy grew by 3.6 percent last year, beating analysts’ expectations and marking a significant rebound from 2022, when its gross domestic product shrank by 2.1 percent.
The unprecedented Western sanctions
Russian President Vladimir Putin said last month that his country had become Europe’s largest economy in terms of output measured in purchasing power units. The war in Ukraine is entering its third year with no end in sight.
Immediately after the start of the war in 2022, the US and its key allies imposed unprecedented export controls, economic sanctions and oil price caps on Russia. They also banned Russian banks from using the global financial messaging system Swift – short for Society for Worldwide Interbank Financial Telecommunication, freezing hundreds of billions of dollars in Russian central bank assets and restricting the flow of military technology to Moscow.
But the Russian economy did not collapse as the West expected. Instead, policymakers in Moscow quickly intervened with a range of measures, including capital controls and monetary policy tools.
In particular, Moscow has accelerated the use of non-dollar currencies in foreign trade, while steadily increasing trade with non-Western partners. Non-dollar trade supported Russia’s economic growth and ensured its financial security.
China is likely to face a similar situation, especially in recent years as calls for decoupling have increased. Russia’s efforts to reduce its use of the dollar in trade appear to have offset pressure from the West, according to data from Russia’s customs service, which showed Russia’s exports to Europe in 2023 fell 68% to 84.9 billion dollars, while its exports to Asia increased by 5.6% to 306.6 billion US dollars.
Russia’s trade with both China and India reached new heights, reaching US$240 billion and US$65 billion respectively.
The use of local currencies
There have been intense discussions among the BRICS bloc – whose members include China, Russia, India, Brazil and South Africa – about increasing the use of the local currency in trade between member states. Meanwhile, Russia increased its energy exports to “friendly countries”, which accounted for about 84% of its total exports in 2023. This underlined the importance of strong ties with developing countries for the joint development of economies with equal way.
The new geopolitical alliances
Even when the vast majority of countries voted in favor of a 2022 United Nations resolution demanding Russia’s withdrawal from Ukraine, none of the countries of the Global South joined the US-led sanctions.
The fact that none of the non-Western countries are involved in the financial or economic sanctions against Russia has ensured that Russian trade can proceed smoothly. This is an example Russia has given China of how to keep international trade growing amid economic sanctions. China could also learn from Russia’s economic resilience in the face of capital flight it has faced.
Gas payments in rubles
When the value of the ruble hit a new low in 2022, Putin did not rush to sell foreign currency from Moscow’s National Wealth Fund to defend the Russian currency. Instead, he asked European countries to pay for Russian gas in rubles, which helped stabilize the currency.
Putin also ordered foreign companies that leave the Russian market to sell their assets for half their value and pay 10% of the sale proceeds to the state.
To bolster its economic resilience, Russia has also stepped up efforts to attract investment from “friendly” countries, including China. These moves have helped Russia avoid “following the rules of the game set by the West” and allowed it to invest more in its domestic supply chain.
In the face of economic sanctions, the priority is to keep its supply chain secure and stable. This is a very important message to China as well.
