China Spy Think Tank Advising Xi Predicts Russia Sanctions Will Backfire

  • Analyst predicts heavy costs, discord for U.S. and its allies
  • Beijing weighing how closely to support partner after invasion

Sanctions leveled on Russia will ultimately cause more damage to the U.S. and its allies, a research group that advises Chinese President Xi Jinping said, as Beijing weighs how much backing to give its close diplomatic partner.

Russia has largely adapted to dealing with punitive financial measures since 2014, when it was penalized for seizing Crimea, Ma Xue, an associate researcher at the China Institutes of Contemporary International Relations, wrote in an article published on social media Tuesday. U.S. and European allies will wind up suffering for supporting Ukraine, said Ma, whose research body is linked to the Ministry of State Security, China’s civilian intelligence agency.

Ma’s assessment contrasts with most early reactions to the measures, which included cutting off the Russian central bank from its pile of foreign exchange. That move sent the ruble tumbling the most since the 1990s. A slew of foreign companies, including BP Plc and Shell Plc, are leaving the world’s No. 11 economy over the financial and reputational risks, and Russian industrial-metal exports have sunk as commodity buyers and financiers pull back.

China has so far refused to either criticize or endorse Russian President Vladimir Putin’s invasion of Ukraine, and abstained from a UN Security Council vote on a resolution condemning the move. On Tuesday, Foreign Ministry spokesman Wang Wenbin repeated China’s call for dialogue between the two sides.

Cutting off Russian banks from the SWIFT money messaging system will wind up hurting Europe roughly as much, according to Ma, whose research body is linked to the Ministry of State Security, China’s civilian intelligence agency. Ma added that the U.S. could also incur major costs in the future providing economic and humanitarian aid to allies, and that Europe could be destabilized by large numbers of fleeing Ukrainians.

“If the Ukraine refugee crisis is not properly handled, this will be conducive for Russia to sow hatred and sabotage NATO,” Ma wrote. “The fierce debate on refugee problems inside Europe could also damage its unity at crucial moments.”

Still, China could provide some support for Russia to keep the punishments from biting too hard. Chinese companies are expected to scoop up discounted Russian oil if sanctions deter other buyers, traders have said. It could also provide a financial lifeline because the People’s Bank of China has a multi-billion dollar currency swap with its counterpart in Moscow, allowing the nations to provide liquidity to businesses so they can continue trading.

Russia has also worked to remove the dollar’s hold over its financial system in recent years — selling most of its U.S. Treasuries in 2018 — as it girded for potential sanctions.

Source: Bloomberg

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