Civilians evacuated from eastern Ukraine are settled at a facility in Moscow, Russia on February 22, 2022. Photo: AFP

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In the wake of the US and Europe unveiling what is believed to be just the first round of sanctions on Russian individuals and institutions in response to Moscow's recognition of two regions in Ukraine as "sovereign states," China said that unilateral sanctions have never been effective in solving global crises, and warned the US not to harm China and other countries' legitimate interests when handling issues related to Ukraine and Russia.

Chinese Foreign Ministry spokesperson Hua Chunying made the remarks at a routine press conference on Wednesday. "Our position is that sanctions are never fundamentally effective means to solve problems. We consistently oppose all illegal unilateral sanctions," Hua said. 

Chinese analysts said that Russia seemed well prepared for Western sanctions before Russian President Vladimir Putin signed on Monday two decrees recognizing "the Lugansk People's Republic (LPR)" and "the Donetsk People's Republic (DPR)" as independent and sovereign states. As Russia has huge energy reserves including oil and gas, as well as rare metals, Moscow does have measures to hit back, and its cooperation with China in payment systems could limit the impact of any Western sanctions. 

But it is possible that US sanctions will target Chinese firms or institutes that have links to Russia, which would increase the risk of further decoupling between China and the US. China needs to be prepared to minimize the possible damage to China-US economic ties, and also prepared to retaliate against potential US moves to harm China's legitimate interests, said experts. 

When asked "what role China has played for easing the current crisis," Hua said that China has always made efforts to promote negotiations and peace on regional hot spot issues. The US has been sending weapons to Ukraine, heightening tensions, creating panic and even hyping up the possibility of warfare. In stark contrast, China has all along called on all parties to respect and attach importance to each other's legitimate security concerns. 

"A key question here is what role the US, the culprit of current tensions surrounding Ukraine, has played. If someone keeps pouring oil on the flame while accusing others of not doing their best to put out the fire, such kind of behavior is clearly irresponsible and immoral," Hua said. 

Sanctions won't work

In the past 20 years, the amount of US sanctions have increased 10 times than in  previous time, and during the term of the previous US president, the US has conducted more than 3,800 sanctions…and since 2011, the US has imposed more than 100 sanctions on Russia." 

"Have the US sanctions solved any problem? Is the world a better place because of those sanctions? Will the Ukraine issue resolve itself thanks to the US sanctions on Russia? Will European security be better guaranteed thanks to the US sanctions on Russia?" Hua asked at the press conference. 

Hua further said that the illegal sanctions initiated by the US and some countries have already caused serious difficulties for relevant countries' economy and people's livelihoods. The US mustn't harm the legitimate rights and interests of China and other parties when handling the Ukraine issue and relations with Russia, Hua said. 

The US has already announced sanctions against Russia including against certain officials, as well as individuals operating in "the LPR" and "the DPR," but analysts said these moves are almost useless and just to show a political stance rather than causing real damage. 

US President Joe Biden on Tuesday also announced sweeping sanctions on the major Russian bank VEB and its military bank, as well as on the country's sovereign debt and on three individuals. 

The bank sanctions will prohibit American financial institutions from processing transactions for VEB and for Russia's military bank, PSB. This would effectively cut the banks out of transactions involving US dollars, the global reserve currency, CNBC reported.

In order to deal with US sanctions, Russia has taken systematic steps to reduce reliance on the US dollar in recent years, such as using the euro or the yuan to settle trade payments, analysts said. 

According to media reports, multiple Russian banks joined China's financial messaging system Cross-border Interbank Payment System, which will facilitate non-dollar settlements between China and Russia. Some of China's third-party payment channels like Alipay are also used in Russia. 

Cui Hongjian, director of the Department of European Studies at the China Institute of International Studies, said that Russia has used, and is capable of using, gradual methods to reduce the negative impact brought about by US financial hegemony, such as by adopting more currency swaps with other countries, carrying out non-dollar payment settlement, and raising the proportion of non-dollar currencies in their foreign reserves. 

"With those methods, it's possible for Russia to decrease the proportion of US dollar in trade payment settlement to 30 percent," Cui said. And when the proportion sinks below 50 percent, the effect of US financial sanctions will be very limited. 

However, Cui stressed that it is impossible for Russia to achieve de-dollarization in the short term, not only because of the wide use of the US dollar in international trade settlement, but also because of the established credit of the greenback.

Zhou Rong, a senior researcher at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Wednesday that as Russia has about $630 billion in foreign exchange reserves, that will help withstand the external financial sanctions for some time.

"Considering Europe's reliance upon Russian supplies, the chances of Russia being excluded from the international SWIFT payment network are small," Cui said, adding that the US might expand the scope of financial punishment on Russia to other countries. For example, it might impose sanctions on third-party financial institutions that have transactions with Russian banks, and this means that some Chinese financial institutions might be drawn into this wave of sanctions.

Does Russia have tools? 

The brewing tensions between Russia and the West will drive oil and natural gas prices higher, which will offset the losses Russia will have to suffer from Western sanctions, Zhou said.

"Energy is Russia's best advantage, as about one-third of Europe's natural gas is imported from Russia. It's easier for Russia to find alternative natural gas buyers than Europe to source replacing suppliers. Therefore, if the US sanctions Russia's natural gas exports, the one who will be hurt the most is Europe, not Russia," Zhou noted.

Yang Jin, an associate research fellow at the Institute of Russian, Eastern European and Central Asian Studies under the Chinese Academy of Social Sciences, told the Global Times on Wednesday that hitting energy enterprises too harshly will bring heavy costs to European countries. The US will not announce all its sanctions at once, rather it will release new sanctions lists separately to bring waves of harm to Russia, as well as targeting military industries and high-tech sectors.  

"But the West has blacklisted Russian military and high-tech enterprises since 2014. So it remains unclear whether the US could leverage its embargo to heap pressure on Russia," Li Jianmin, a research fellow at the Chinese Academy of Social Sciences, told the Global Times.

Another tool that Russia holds as a lever against the West is titanium, which is needed by many US and European companies for manufacturing, including Boeing. If Russia carries out titanium sanctions against Europe or the US, the consequence might be beyond endurance for those economies, Zhou said. 

"All in all, Western sanctions against Russia are more likely to be big on promises and short on action. And in the worst scenario, if the US really carries out extreme sanctions against Russia, I think it won't be too difficult for a country so experienced at economic planning as Russia is to withstand them for some time," Zhou said.

Yang warned that the US is highly likely to target Chinese firms, banks, institutions and individuals that have cooperation with Russia. These include the financial sectors which Russia needs to diversify its reliance over Western payment system, aviation and aeronautics in which China and Russia have deep cooperation, and high-tech firms where the US wants to find an excuse to hit China due to competition in the field of science and technology. 

China is aware of these potential threats from the US due to latest developments in the Ukraine crisis and it is fully prepared. This is why Hua warned Washington not to harm China's legitimate interests when handling ties with Moscow. If the US imposes sanctions or "long-arm jurisdictions" against China, there would be more harm to global economic recovery and China-US trade ties. This would not be good news for the US' problematic economy, analysts said.