Ukraine conflict: Tough tech sanctions hit Russia – will China step in?

Created: 03/01/2022, 13:45

From: China.Table

Payment processing in yuan for Russia: China could step in as savior from Western SWIFT sanctions (stock image) © Bai Xueqi/Imago/Xinhua

The new technology sanctions can hit Russia's economy hard.

China could offset the punitive measures with its own deliveries.

But do both sides want that?

• In the Ukraine conflict, the EU and the USA are sanctioning the export of many high-tech products to Russia.

• China could step in.

  Around 70 percent of the chips that Russia needs come from China. 

• But Beijing has to hold back, after all, the Communist Party doesn't want to break completely with the West.

  This price would probably be too high. 

• This article is 

  available to IPPEN.MEDIA

   as part of a cooperation with the 

  China.Table Professional Briefing -

  China.Table

   first published it 

   on February 14, 2022.

Beijing/Berlin – The pressure on Russia's economy in the Ukraine conflict* is growing.

In addition to financial sanctions, no high-tech goods should be delivered to Russia in the future.

US President Joe Biden* spoke on the day of the Russian invasion of Ukraine of sanctions that could permanently weaken Russia's economy*.

"Some of the strongest impacts of our actions will materialize over time as we limit Russia's access to finance and technology for strategic sectors of its economy and dismantle its industrial capacity for years to come," Biden said.

Since last weekend it has been decided that not only the USA, but also Germany and a number of other countries will exclude a number of Russian banks and financial institutions from the international bank data system SWIFT*.

Financial experts around the world agree that this is the toughest sanctions against Russia.

Raw materials from Russia can no longer be paid for.

Trade with Western countries grinds to a halt, throwing Russia back decades.

Local foreign companies are threatened with losses in the billions if they have to restrict or even give up their economic activities in the country.

Only China* – as one of Russia's few allies – wants to continue trading with Moscow.

Ukraine conflict: China unclearly positioned in dealings with Russia - does it want to support Moscow?

In any case, China still hasn't clearly positioned itself against Putin's war decision*.

Rather, the announcements from the Beijing Foreign Ministry sound monotonous and lack empathy for any values: "China does not support the use of sanctions to solve problems and is against unilateral sanctions that have no basis in international law," the Foreign Ministry quoted on Sunday Statement by Chinese Foreign Minister Wang Yi.

The US government press secretary has already taken the wind out of the sails of concerns that Beijing's trade with Russia could offset the sanctions from the West.

China will not be able to cover the impact of the sanctions, Jen Psaki said.

Their argument: China and Russia's share of the global economy is far smaller than that of the G7 countries, which include the US and Germany.

According to World Bank data, in 2020 China accounted for 17.3 percent of global economic output (GDP) and Russia for 1.7 percent.

The G7 countries come to 45.8 percent. 

The economic sanctions are primarily about semiconductors, computers, mobile phones and other high-tech goods that Russia needs in order to "modernize its economy", as EU Commission President Ursula von der Leyen puts it.

Accordingly, it is also clear that technologies that could be used in the military sector or used to support it can hardly be exported to Russia in the future.

China supplies 70 percent of all chips used in Russia - but the US designs them

But how effective will the West's high-tech sanctions be?

The problem is quickly named: It is China, which is one of the world's leading manufacturers of electronics, machines and other industrial goods.

Around 70 percent of the chips that Russia needs come from China.

In return, Russia supplies energy and food to China*. 

But the US is the leader in designing chips, still holding most of the patents in the field.

Whereas China is just one of many manufacturing locations in the world where chips are made.

And the US government's Foreign Product Direct Rule (FPDR) ensures that the chips designed in the USA are not shipped from China to Russia.

Because the export restrictions passed through the FPDR also have an indirect effect on producers: if production is significantly dependent on US products, such as software, components or chips, the end products also fall under the sanctions regime and require a separate US export license.

Ukraine crisis: US sanctions against China's Huawei as a blueprint for Russia sanctions

“The Trump administration's actions against Huawei could serve as a blueprint.

The so-called Foreign Direct Product Rule (FDPR) was applied there.

What is special about it is its reach: it also affects technologies produced abroad that contain a certain proportion of US technologies or were manufactured using American software or equipment," says Sophie-Charlotte Fischer, researcher at the Center for Security Studies at ETH Zurich and Specialist in sanction regimes for high technologies.

Nevertheless, the Association of US Semiconductors SIA does not generally see any serious financial losses in the semiconductor industry based on the technology sanctions.

"Russia is not a major consumer of semiconductors," says John Neuffer, CEO of SIA.

According to SIA data, Russia accounts for just 0.1 percent of global chip purchases.

The US research company IDC also calculates that the Russian chip market has a commercial value of just 50 billion US dollars in a global industry of 4.5 trillion US dollars.

Sanctions in the Ukraine conflict: how dependent does Russia want to become on China's technology?

Paul Triolo, head of technology policy at the consulting firm Albright Stonebridge Group, told Politico that while he believes China cannot meet Russia's need for advanced chips.

But he sees that Chinese firms have recently positioned themselves so well that they can offer competitive cloud services and enterprise software to replace the options currently available in the US or Europe. 

And this option also poses difficult decisions for both Beijing and Moscow, because such a step could make China itself the target of sanctions from Washington.

In addition, the People's Republic itself is dependent on chips from abroad, since the country is not yet able to develop them independently.

At the same time, the Russian government and its security apparatus have serious concerns about using network technologies from China and making themselves dependent on them.

"The question is how much Russia wants to make itself dependent on critical Chinese technologies," says Sophie-Charlotte Fischer.

By Ning Wang

The journalist 

 has been working as an editor for the Table.Media Professional Briefings since 2020 and writes on topics related to economy, politics, culture and society.

Before that, she reported from Beijing as China correspondent for the Tagesspiegel, wrote for the Neue Züricher Zeitung am Sonntag and Zeit Online.

This article appeared on February 14, 2022 in the 

newsletter  - as part of a cooperation, it is now also available to the readers of the IPPEN.MEDIA portals.

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