China’s new Belt and Road Initiative investments in Russia have fallen to zero for the first time, signalling Beijing’s reluctance to incur sanctions in the wake of the Ukraine war.
Beijing struck no deals with Russian entities under the BRI programme in the first half of 2022, according to a report by the Green Finance & Development Center at Fudan University in Shanghai reviewed by the Financial Times.
Christoph Nedopil Wang, director of the centre, said the threat of western-led sanctions could have deterred China from investing in Russia. While slowing its investments in Russia, China deepened its engagement with the Middle East.
Nedopil Wang said the fall may be “only temporary” and that there was “definitely strong engagement between Russia and China”. He added that Chinese purchases of Russian energy exports have increased despite the war.
Russia has been among the top beneficiaries of Chinese development spending through the BRI, President Xi Jinping’s signature foreign policy conceived as the world’s biggest development programme.
Since its establishment in 2013, China’s cumulative BRI engagement amounts to $932bn, including $561bn in construction contracts and $371bn in investments, according to the report. BRI projects span sectors from ports to railways and data centres to mines.
The lack of Russian engagement in 2022 marked the first six-month period with no China-Russia BRI deals. Russia and China signed deals worth about $2bn in 2021, researchers said.
Official lending commitments from China to Russia from 2000 to 2017 — which incorporates BRI spending — totalled $125.4bn, according to AidData, an international research lab at the College of William & Mary in Virginia. That includes $58bn from the China Development Bank and $15bn from China Eximbank, the country’s big policy banks.
China still depends on Russian supplies for about 15 per cent of its oil and 8 per cent of its gas. New energy deals expanding these arrangements were struck in early February, days before Russian troops were ordered to invade Ukraine.
Since the February invasion, Beijing has criticised international sanctions on Russia, although many of its companies are being careful not to breach them.
The Fudan University data showed that Saudi Arabia has now become one of the biggest beneficiaries of the BRI as China strengthens its ties with Middle Eastern states through large energy and construction deals.
Beijing inked $5.5bn of deals in Saudi Arabia in the first half of the year — more than any other country — as Chinese outbound investments broadly plateaued. In 2021, Iraq was the biggest BRI beneficiary with $10.5bn in construction deals.
“It is significant and it is showing . . . a focus on resources deals,” said Nedopil Wang.
China’s strengthening position in the Middle East comes after the US formally ended its combat mission in Iraq and pulled out of Afghanistan. US president Joe Biden travelled to Riyadh this month, promising to “not walk away and leave a vacuum to be filled by China, Russia, or Iran”.
The Fudan University report reflected the changing role and smaller footprint of the BRI, once touted by Beijing as the “project of the century”.
In the first half of 2022, there was a total of $28.4bn in Chinese investments and contractual co-operation across the 147 BRI countries, down from $29.6bn in the same period a year ago.
The longer-term decline in BRI engagement comes in the wake of growing scrutiny of how the project loans exacerbate financial pressures on vulnerable governments. In the most recent example cited by critics, Sri Lanka, a BRI beneficiary, defaulted on its sovereign debt in May.
While the researchers do not expect Chinese BRI engagement to return to past peaks, the data suggested that the focus was sharpening on deals to secure access to strategic resources, including minerals used in the clean technology supply chain as well as oil and gas across the Middle East, Africa and Latin America.
“The Belt and Road Initiative remains very relevant,” Nedopil Wang said.