February 7, 2023

China’s new investment in Russia’s Belt and Road Initiative has fallen to zero for the first time, signaling Beijing’s reluctance to impose sanctions in the wake of the war in Ukraine.

Contrary to previous pledges and multi-billion dollar contracts, Beijing did not sign any new deals with Russian entities under the Belt and Road program in the first half of 2022, according to new data.

The findings were part of a report from the Green Finance & Development Center at Fudan University in Shanghai, reviewed by the Financial Times. As it slowed investment in Russia, China deepened its involvement in the Middle East, the report said.

Christoph Nedopil Wang, director of the Green Finance & Development Center, said the threat of western-led sanctions could have deterred China from investing in Russia.

But he said the fall could be “only temporary” and that there is “definitely a strong engagement between Russia and China”. He added that China’s purchases of Russian energy exports have increased despite the war.

For years, Russia has been one of the main beneficiaries of Chinese development spending through the Belt and Road program, President Xi Jinping’s signature foreign policy.

According to AidData, an international research lab at the College of William & Mary in Virginia, China’s official credit commitments to Russia totaled $125.4 billion from 2000 to 2017. That includes $58 billion from the China Development Bank and $15 billion from China Eximbank, China’s two major policy banks.

China still depends on Russian supplies for about 15 percent of its oil and 8 percent of its gas. New energy deals expanding these arrangements were made in early February, days before Russian forces were ordered to invade.

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Since the February invasion, Beijing has criticized international sanctions against Russia, though many of its companies are careful not to violate them.

Data from Fudan University shows that Saudi Arabia is now one of the biggest beneficiaries of the Belt and Road initiative as China strengthens its ties with Middle Eastern states through massive energy and construction deals.

Beijing signed $5.5 billion in new deals in Saudi Arabia — more than any other country — in the first half of the year as Chinese outbound investment broadly stagnated. In 2021, Iraq was the largest beneficiary of BRI with $10.5 billion in new construction deals.

“It is important and it can be seen. . . a focus on commodity agreements,” says Nedopil Wang.

The strengthening of China’s position in the Middle East comes after the US formally ended its combat mission in Iraq and withdrew from Afghanistan. US President Joe Biden traveled to Riyadh this month and pledged “not to run away and leave a vacuum for China, Russia or Iran to fill”.

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 $28.4 billion in Chinese investment and contractual cooperation in the 147 BRI countries, down from $29.6 billion in the same period a year ago.

The decline in longer-term involvement of BRIs is due to increasing research into how project loans are increasing the financial pressure on vulnerable governments. In the most recent example used by critics, Sri Lanka, a beneficiary of the BRI, defaulted on its national debt in May.

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While the researchers don’t expect China’s BRI engagement to return to previous peaks, the data suggests a tightening of the focus on deals to secure access to strategic resources, including minerals used in the clean technology supply chain, as well as oil. and gas in the Middle East, Africa and Latin America.

“The Belt and Road Initiative remains highly relevant,” said Nedopil Wang.