China’s Russia Dilemma

Panelists discuss China’s economic and political relationship with Russia, how China has responded to Russia’s military action against Ukraine, and what the international response to Russia’s invasion could mean for China’s policy calculation toward Taiwan.

Transcript:

NAGORSKI: Thank you, Laura. Welcome to today’s meeting on “China’s Russia Dilemma.” I’m Andrew Nagorski and I will be moderating this discussion. We’ll handle it the way we usually handle these discussions at the Council. We’ll do the first half-hour a discussion among the panelists, and then I’ll throw it open to questions from everyone attending virtually. I’ll just do a very quick introduction to our panelists, since you have the bios. Zoe Liu is the fellow for international political economy at the Council on Foreign Relations. She specializes in East Asia, particularly China and Japan. She also covers the Middle East, particularly the Gulf states. And I should mention that she has a very interesting piece up on the website right now about China’s relationship with Ukraine over this period before the war broke out. Evan Medeiros is the Penner Family Chair in Asia Studies at the Foreign Service School at Georgetown University. Previously he was on the staff of the National Security Council as director for China, Taiwan, and Mongolia. And then he served as a special assistant to the president and senior director for Asia. So he was very much a point man on Asia policy during the Obama administration. Susan Thornton is a—had a long career in the Foreign Service serving in East Asia, Eurasia, China, Russia in a variety of posts, and then became the assistant—acting assistant secretary for East Asian and Pacific Affairs. Today she is—she is a visiting lecturer at the Yale Law School Paul Tsai China Center. And she also is active in a number of other institutions dealing with Asian policy. So let me start with the title of our talk, which is China’s Russia Dilemma, and perhaps raise the question, how much of a dilemma is it? Just by way of personal background, in the late 1970s I was based in Hong Kong for Newsweek. And at that time, everyone, of course, was focused on the U.S.-China relations and the establishment of diplomatic relations. But I remember a lunch I had with a Soviet diplomat in Beijing, who his whole purpose of inviting me to lunch was to argue that, despite the Sino-Soviet rift, the real relationship that would matter in the long run would be the Russian-Chinese relationship. He said, we’re much more compatible in terms of economics, in terms of trade, in terms of our worldview. Which obviously meant opposing what was considered the Western worldview and such concepts as democracy and human right. He said, you just wait. That’s going to be the really important one. And now, Zoe, let me start with you. Here we had Putin going to China in February, signing—you know, and Putin and Xi describing their great friendship, the partnership between the two countries. And following the invasion of Ukraine, that China really—at least abstaining on the main vote in the U.N., in terms of not condemning Russia, then echoing Russian propaganda about the war. So was that Soviet diplomat right that in the long run that’s the relationship that matters?

LIU: Thank you very much, Andrew, for this great opening question that, in many ways, it helps bring some important historical context in our conversation. And I guess, you know, before I start giving you my answer, I wanted to thank our CFR members who have registered and joined today’s discussion. And I also wanted to say that it’s a great privilege to be here with Andrew, Susan, and Evan today because, you know, when I was in graduate school all your work—your writings, your books—you know, have had an influence on my studies a lot. So it’s a great privilege to be here. And I wanted to, you know, sort of give you some personal take on this event since, Andrew, you bring up—you brought up an anecdote. You know, when I grew up with my grandfather, you know, he fought all the major wars—anti-Japanese war, Chinese civil war. He even went to, you know, Korea, fought in the—you know, the Korean Peninsula. So I grew up with him. And he always referred to the Soviet Union as big brother—the old, big brother. But then when it comes to my generation, my parents encouraged me to go study abroad. And guess where they want to send me? To America. (Laughs.) So I think that speaks to something both for my parents’ generation and, you know, also my generation. And obviously I’m not the only person. So I guess, you know, the bottom line of my assessment is that China and Russia’s interest convergence, as you frame it, should be examined in the broader context of China’s attempt, in many ways, to rejoin the multipolar global system, which is led by the United States. And that is to say China- Russia convergence today, from my assessment, is qualitatively different from the Sino-Soviet alliance in the 1950s, in many ways. You know, the two countries do have interest convergence since the Sino-Soviet split.  And they have improved their relationship both bilaterally and multilateral—in a multilateral context over the past three decades. Especially, I would say, after 2000. You know, for example, bilaterally, 2001, you have the Sino—China-Russia signed the treaty of good and neighborly—Good-Neighborliness and Friendly Cooperation, famously—and then—

NAGORSKI: In the new era. (Laughs.)

LIU: Yes, exactly. And multilaterally in 2001, you know, there is also the Shanghai Five group upgrading themselves into the Shanghai Cooperation Organization, which now has become the largest regional organization. I also wanted to, you know, bring this back a little bit to, say, China’s relationship improvement with Russia has been in the context of China’s improved relationship with the U.S.-led global system. Again, 2001 China was admitted into the WTO. This is not serendipitous, by some chance, but evidence to say that while Beijing attempts to integrate into the U.S.-led global system it also tries to maintain a practical relationship with Russia and, perhaps, non-Western countries. And the goal is, in many ways, to promote a multilateral world rather than being, in many ways, helplessly pulled into a U.S. hegemonic global system. Now, fast forward, we have some structurally important, you know, elements here or, you know, in many ways critical junctures, right? Global financial crisis, the Arab Spring, Russia’s annexation of Crimea, and then Western sanctions against Western entities and individuals. And then they’re followed by the deterioration of U.S.-China relations and the Western sanctions on Chinese entities, export control, and all that. So all these further promoted a China-Russia convergence of anti-U.S. hegemony at a strategic level, and then hedging against U.S. sanctions perhaps at a practical level. The two countries have been developing alternative financial infrastructure in many ways, you know, as a hedging strategy in case the current global system is weaponized against them. I’m happy to go into that, but I wanted to, you know, bring this into our current crisis here. And, you know, you are right, Andrew. And everybody knows that China has not called it out as an invasion, and all that. But I think this relationship—and many people would also refer to the unlimitedness or the—not unlimitedness of partnership in the joint statement. But at the most basic level, I wanted to say that in many ways the crisis is a test to the limit, and it exposes the limit. Most basically, China doesn’t want to get involved. And it does not want to be forced to take a side. I remember talking to my friend, asking them, you know, what are you thinking? Some of them, chatting on WeChat, they told me: Hey, Zoe, I don’t want to talk about anything like this on WeChat. Others would be relatively frank in saying that, well, you know, in Chinese there is this saying, you know, when the sky falls those who are taller can hold it up for us. In many ways, I think this is more or less consistent with Foreign Minister Wang Yi’s March phone conversation with this Spanish counterpart. You know, he basically said: China is not a party to the crisis, nor does China want to be sanctioned by the United States, or any sanction to affect China. And reemphasized, you know, China has its own rising interests.

NAGORSKI: Yeah. Zoe, thanks, yeah. I mean, that’s a great summary of the context. The question right now, obviously, is that balancing act between China’s kind of multipolar image and dealing with the U.S. and dealing with Russia is harder and harder to sustain in this context. So, Evan or Susan, do you want to add anything on that score?

MEDEIROS: Well—

THORNTON: I would just—go ahead.

MEDEIROS: Please, Susan.

THORNTON: I mean, I was just going to say that I do think that the relationship between China and Russia has been improving for a number of decades, but there was a real change after 2014, the annexation of Crimea, where China did step in to help Russia out in the face of kind of a program from the rest of, especially the West, but many countries—in spite of the fact that China doesn’t recognize the annexation of Crimea. And I would just point out that even with that, the Chinese and Russians didn’t manage to take advantage of as many opportunities as they might have there. So the Chinese were still, I think, being quite opportunistic about it, not really, you know, stepping up and being kind of a fair weather friend—or, an all-weather friend and an ally. 
So I think now, though, in the face of kind of their joint feeling of pressure from so-called Western alliance, or in China’s case certainly from the U.S., that has really accelerated their kind of closeness. And we do see it in a range of areas, including military cooperation exercises. I mean, I don’t—I’m one who thinks that this has limits, in spite of the no-limits friendship. But, you know, I think it—faced with, you know, problems from the West and from the U.S., it’s a—it’s definitely pushed them together.

NAGORSKI: Evan, what are the limits? And particularly, where does China, looking at this situation and see the sanctions imposed on Russia, how does it evaluate those sanctions given, of course, that Chinese—China financially, in terms of trade, investment, and everything—is much more tied in with the U.S. and Europe than it is with Russia, which is a very small fraction of that?

MEDEIROS: Well, Andrew, first, many thanks to CFR, to you. And it’s wonderful to be part of a great collection of China watchers. Susan and I worked together when she was in the Foreign Service. She’s one of the best of the best. So it’s fun to share another panel with her. I think that the key point, when I look at China-Russia in the context of Ukraine, is that, yes, it poses a dilemma for China. But the Chinese are not particularly concerned about the dilemma or the contradictions, right? They’re Marxists. They embrace contradictions; they don’t reject them like we do in the United States and the West. And the reality is, is they’re comfortable living in a world of contradictions. My personal assessment is that they’re not going to be able to have their cake and eat it too, even though that’s their goal. You listen to Wang Yi and he claims China is neutral. But they don’t really—their position is not really neutral, when you look at their rhetoric, when you look at their diplomacy, when you look at their, you know, sanctions behavior. So I think what we’re seeing is a world in which China looks at the Ukraine conflict and the China-Russia relationship largely through the prism of long-term U.S.-China competition.  And the Chinese believe that the U.S. and NATO caused Russia to invade. They blame the U.S. and NATO. They are going around the world rhetorically and diplomatically trying to build this effort at opposing U.S. hegemony. I just read the latest by the deputy foreign ministry spokesperson Zhao Lijian. The language is really striking. I mean, it’s getting more intensive and more critical of the United States, not less. So I think that we’re pretty rapidly transitioning into a world in which the alignment between China and Russia is only becoming closer. And I very much agree with Zoe’s assessment that qualitatively we’re in a different world. This is—the China-Russia relationship is drive by a common vision of global affairs which is focused on constraining U.S. power. It’s based on common material interests. Russia is China’s most important oil and gas partner, and a critical source of some very important advanced military technologies, and shared values. And that—the core value is one party political systems and state-directed development. And anything that is critical of that the Chinese and the Russians oppose. So what’s striking to me is just two weeks ago, when Foreign Minister Wang Yi met with his Russian counterpart Lavrov—sorry—Lavrov—you know, when we’re—when we’re six weeks into the war he said, quote, “We have withstood the new test of a changing international system. Both companies are more confident to advance cooperation in all areas. And Beijing is willing to promote China-Russia relations to a new level.” So basically, China and Russia—so that’s six weeks into the conflict, Wang Yi and Lavrov met in China at a meeting. And they’re talking about what more they can do. So I think we’re—sorry?

NAGORSKI: Sorry, go ahead, yeah, please.

MEDEIROS: So I just think that we need to understand that we’re entering a very, very different world, in which you’re beginning to have a fragmentation and a reordering of power relationships with China and Russia at the core. And Chinese diplomacy, which I watch very, very carefully—both the language and the actions—is trying to build—is trying to reenergize the BRICS as an entity, build out the global south focused on opposing American hegemony, opposing Western sanctions, and opposing alliance—concepts and values that Russia and China have long articulated in their diplomacy. And if that continues, if that language and that diplomatic strategy by Russia and China continues, and if it gets traction in the global south, then I think we’re going to begin seeing a much more bifurcated international system. I don’t expect a replay of the Cold War, East and West camps. But I think global politics will have a much more fragmented quality, and trade and investment links will follow. Over to you, Andrew.

NAGORSKI: Yeah. OK, well, thank you. But just to zero in on the sanctions question, Western sanctions is—in effect, what you’re saying is that Western sanctions have not produced any rethink of China’s policies, quite the contrary. Is that your message?

MEDEIROS: Well, the data on China sanctions, to the extent that it exists in the open-source world, is pretty clear. The Chinese are adhering to the letter of the sanctions. The question is, over the long term, will they adhere to the spirit of it? So the Yale School of Management offers a database. Their information suggests that forty-three Chinese firms are continuing business as usual, but none of that activity is sanctions-busting. 
Whereas, you have a variety of other Chinese firms, specifically in the oil and gas space—so Sinopec, CNOOC, PetroChina, and Sinochem are all continuing existing contracts, but suspending new contracts. In the finance space, the Asia Infrastructure Investment Bank, the Bank of China, the ICBC have all suspended operations in Russia. In the tech space in China, it’s mixed. So the three sectors I watch most closely are energy, finance, and tech. No obvious—no examples of sanction-busting behavior, per se, but the threshold for the administration is not sort of the episodic sanction-busting. In the energy space, I would expect some of the teapot refiners in China or the local provincial banks in China probably to engage in some opportunistic rent-seeking behavior that might be sanctions busting. The real question is, are we seeing, you know, a systemic effort to violate sanctions? And the answer to that is no. So their sanctions behavior is not terribly surprising, Andrew.

NAGORSKI: Yeah, it’s not surprising. I guess I’m trying to get at the larger question, whether the sanctions that the West has imposed, whatever their efficacy, has it—has it caused the Chinese leadership to think about the consequences of aggression and whether it’s—yeah.

MEDEIROS: So—right. So the simple answer is, there’s no evidence of that to date. As a long-time China watcher—and I welcome Zoe and Susan’s view—of course the Chinese leadership is worried about exposure and vulnerability. In fact, that conversation in China began before the war in Ukraine. If you go back to the spring of 2021 and the passage of the fourteenth five-year plan—so that’s their five-year plan for the—for their economy—it specifically talked about national security threats to their economy and put forward the idea of dual circulation. Which is basically—the concept is reengineering the Chinese economy to reduce China’s vulnerability and exposure to others, while increasing others’ exposure and vulnerability to China. So basically, to turn interdependence into asymmetric dependence. So the Chinese were already concerned about that. All Ukraine does is give them even more impetus. And to be very specific, the Chinese and the Russians are almost certainly working on reducing their vulnerability to dollar-denominated business. I think it’s going to be hard for the Chinese to do that, but we will likely see a variety of new resource contracts—big, long-term contracts between China and foreign actors—be denominated increasingly in renminbi, as opposed to the dollar. Over to you, Andrew.

NAGORSKI: OK. Susan, can we turn for a moment to the military situation? And how do you think the Chinese are viewing the military situation in Ukraine? And did they believe Putin’s assurances—I assume there were some assurances, or at least his signals—that this was going to be a quick and clean operation? Which is the exact opposite of what has happened?

THORNTON: Yeah. Thank you, Andrew. And, again, thanks to everybody tuning in. And great to be here with you, and with Zoe, and with Evan. And this is a—you know, it’s an ongoing—the situation isn’t clear yet. I mean, this situation is still unfolding. So there’s a lot still before us, and a lot that we can’t really tell right now. But I do think that we can look at several things that surprised the Chinese, right? If we’re talking about, you know, how are they looking at things? What are they analyzing? And how is it going to affect what they do? The first surprise I think, for sure, is that they didn’t except exactly what happened on February 24th. And I think we know that. They’ve told several people that. What they did expect we don’t know, but we know that they didn’t expect this. So that’s, you know, one thing that is relevant to sort of how the relationship between China and Russia unfolds. The second thing, they didn’t expect, I don’t think, the dramatic response from the Ukrainian military and the Ukrainian people. So they probably under-estimated, you know, the response of Ukrainians, just as probably Putin apparently did. They also definitely would not have foreseen the problems of the Russian military. And I’m sure that has been quite surprising to them, as it has been, I think, to most people. You know, these basic logistical problems and other things, they would not have anticipated that. And it’s revealed a lot, I think, about what’s going on in Russia. They did not, I don’t think, probably anticipate the dramatic and unified Western response. After all, in 2008 when Putin invaded Georgia there was, you know, not much of a response. In 2014 there were sanctions after they invaded Crimea. But again, you know, that was—those two situations, of course, were a lot more complicated and different from the current invasion but, you know, that probably caught them by surprise, that there was such a dramatic response. Of course, the response to Putin’s brutality in Ukraine and the scope of the invasion, it’s perfectly appropriate. But the Chinese probably missed that. And then I think the thing that really surprised them, and speaking of the sanctions, I mean, the sanctions—the level, and depth, and sweeping nature of them, and the financial scope of them, but also the popular response, you know, around the world and by companies sort of self-sanctioning, and boycotts spontaneously emerging—I think those things probably also surprised the Chinese. Although probably they shouldn’t have. But I think—so I think, you know, we can see in several area where their information and analysis may have been not really up to speed. And I’m pretty sure—I agree with Jake Sullivan. I’m pretty sure that Putin would not have told Xi Jinping the details of what he was planning. So I think what we should also, though, look at now is what are the things that we want the Chinese to do? And what are the things we’re expecting them to do? And what are they likely to do in terms of those items? So, first, the big focus has been on China not supplying weapons to Russia and not busting the sanctions. And Evan’s spoken to the second thing. I think the Chinese have also given some assurances in various quarters that they wouldn’t ship weapons. So we’ll be watching that, obviously.  There’s a lot of—obviously, the main focus is to stop the war as soon as possible. And the Chinese should be doing whatever they can to get a ceasefire and to get humanitarian corridors opened. And many people have asked them to do whatever they can with those two items. They have been pretty reticent about what they would be willing to do. And I tend to think they will be unlikely to do much in terms of pressuring Putin or Russia. We can have a discussion about whether they have much influence there, whether Putin will listen to them. But I think, you know, that would be an expectation that people would have, that they’re using whatever influence they have to get that. And then I think another major point of irritation, certainly, if not out-right outrage, is the perpetuation of sort of disinformation in Chinese media sources of a lot of these, you know, conspiracy theories or other just wrong information. I mean, they can blame NATO for the conflict. They have their position on, you know, the U.S. framed by their, as Evan put it, you know, the anti-U.S. hegemony stance, et cetera. But to circulate stories about things like bioweapons, labs in Ukraine that are coming straight out of, you know, Russian disinformation factories is highly irresponsible. So they, you know, hopefully would stop that, but we’ll see. 
And then I think, you know, the real key is to prevent escalation of this crisis, and certainly to the use of WMD. And China has an interest, frankly, in making sure that there, you know, are not—no use of nuclear weapons, obviously, but also chemical and biological weapons. And, you know, as P-5 member of the U.N. Security Council, they ought to be pressing and standing up for that. So again, we’ll see if many of these things happen. I think there’s a lot of skepticism, and I share that skepticism.  But, you know, as a permanent member of the U.N. Security Council, China has special responsibilities, more than other countries, to stand up for some of these principles. And it’s part of their long-standing foreign policy. So they ought to be doing so. And, you know, we’ll see. I think Evan’s probably right about being skeptical.

NAGORSKI: Yeah. I think the skepticism—yeah. I think no one would dispute that. Let me, since I do want to get to members’ questions very soon, but raise the other, of course, big issue—Taiwan. And the implications for Taiwan. What lessons is not only China drawing from how this whole crisis is playing out for its—whatever it plans for Taiwan in the future. And—but one lesson is also, is Taiwan itself drawing from both the war, the Western response, and what it should be doing that might be different from what it’s doing at the present.
Maybe Zoe, you want to briefly respond to that?

LIU: Yeah, sure, thank you, Andrew. I think, yeah, I’ll start with Taiwan, in the sense that I think the most important takeaway from the Ukraine crisis that, from Taiwan’s perspective, probably is that God helps those who help themselves. I mean, Taiwan probably would not count on external forces to defend it in the face of military action against it. And then on the mainland side, I think things probably are more complicated, in the sense that I think there are probably—just pure speculative, you know, I do not believe in reading the mind of Xi Jinping, or whoever. But I think, at least, there are three key lessons. The first is that Beijing probably may feel that external intervention rather than internal Taiwanese separatism movement or independence movement probably will become a bigger threat in managing the relationship with Taiwan. And you see Prime Minister Li Keqiang spoke of the Taiwan issue in his government work report during the two sessions. And he emphasized this, you know, opposed external interference. And then, secondly, Beijing probably did not—agree with Susan 100 percent—Beijing probably did not anticipate the speed or the scale of Western sanctions, as well as the coalitional nature. So China—given that China is way much more dependent on big global system, on trade and all that, than Russia, so it’s probably not going to escalate this thorny issue into a crisis anytime soon. And then, thirdly, probably Beijing—even if Beijing wanted to do certain—to take military actions, probably Beijing would have very well—make into the consideration that this is not going to be a quick war. So all this is to say that probably the odds of an escalation of Taiwan crisis, in my assessment, both sides would be much more cautious. So it’s probably not going to have escalation—I hope so.

NAGORSKI: OK. A quick concluding comment on at least this section. Evan, Susan?

MEDEIROS: Sure. So I was just in Taiwan, Andrew, as you know, as part of the White House—or the non-official White House-led delegation. And I’d say Taiwan’s response is a lot clearer than mainland China’s response. China’s response is, as Zoe pointed out, basically, it’s time for us to get serious about defense strategy, defense procurement, civil defense, a variety of different domestic reforms. And that’s all good. A Taiwan that is more capable, takes actions to reinforce deterrence, takes greater responsibility for its own defense, I think ultimately is a good thing. In terms of mainland China’s response, I am very, very careful at drawing any conclusions. I think it’s way too early to tell. You know, I think Zoe’s analysis was excellent, but I’m not convinced that our analysis in the West is going to be same as Chinese analysis. They’re going to look at, you know, the question of the lack of U.S. and/or NATO involvement. Not clear to me what conclusions they’re going to draw. It’s not clear what conclusions they’re going to draw about sanctions yet, or global diplomacy. I never underestimate our ability to misunderstand how the top leaders of the Chinese Communist Party see it. So I would say it’s a little too early to draw, you know, the conclusions. Now, what I want to say, of course, is Russia’s experience with Ukraine shows all the costs, complications, risks, and barriers for China to use force over Taiwan. I’m just not convinced that they’re going to come to that conclusion. Over to you, Andrew.

NAGORSKI: Thanks. Susan?

THORNTON: Yeah, I agree with Evan 100 percent. I think it’s too early to say how, you know, the Ukraine situation will impact Taiwan. But I do agree with Zoe that I don’t think that we—that this is an imminent crisis, or at least not one that the Chinese are looking to have anytime soon. And certainly, maybe the complications in Ukraine would help with that impulse to not have it happen anytime soon.

NAGORSKI: OK. Well, I remember being actually the shuttered U.S. Embassy in Taipei on the morning when we had—we had announced diplomatic relations with China. And all the demonstrators were out there. And the Taiwanese people there felt pretty lonely. I assume that those lessons have resonated over the ages, and they are—they are calculating on that basis, even though they’re hoping for as much help as they can get.
All right. Well, I’d like to turn this over to the members for questions. Laura, if you can start funneling some of the questions.

OPERATOR: (Gives queuing instructions.)
We’ll take the first question from Peter Galbraith.

Q: Thank you for a really excellent presentation.
My question is—it really goes to whether, in all regards, we have had the wisest approach to the Chinese. Whether, for example, some of our rhetoric. The description of China as an adversary, our new strategic focus, might have had an adverse effect on China’s view of us, and therefore moving toward Russia. Or, to take one issue, the South China Sea. I mean, to what extent is that really our issue? It’s obviously a big issue for the littoral states, but did we really need to make that so central to our own interests? And I say that because imagine whether there could ever have been a solution to the Panama Canal issue had the Soviet Union been backing Panama. In short, there may be times when our non-involvement might have a better result to solving a problem, but also might not have led to as much concern in China about us, and therefore moving toward Russia.

NAGORSKI: Thank you, Peter. Who would like to have a go at that? Susan.

THORNTON: I’ll table a stab, sure. So I guess there are two issues here. One is the extent to which in the context of our current discussion today sort of the deterioration in U.S.-China relations facilitates the, you know, kind of driving together of China and Russia. And I tend to think that there is a causal relationship there. I don’t think Russia-China is a natural alliance. And although they have similar gripes, the biggest one is about their relations with the United States. So to the extent that they see in parallel relations with the United States deteriorating rapidly, it’s obviously going to give them more common cause than they would have otherwise had. But I have to say, Peter, that I think Chinese foreign policy has also been a huge underlying factor in the way things have deteriorated. And if you just look at sort of the way they have gone about—in my mind, it’s all about them deciding that China is now a big power, and it has been sort of disrespected, and we’re going to stand up for our interests now, and we’re going to push back on, you know, perceived slights, you know, around our periphery and around, you know, the international system. And, you know, the South China Sea I think is one of those stories, where, you know, the Chinese, being a rising major power that was going to basically instill fear in the neighbors.  And in the context of its rapid military buildup, you can certainly understand how they would see that. And not taking a more kind of long-term and less aggressive approach to a lot of these maritime disputes which, frankly, are probably never going to be solved. And that used to be the Chinese approach. You know, put it on a shelf and find common ground. That was their big mantra for their foreign policy. And they somehow abandoned that. And there is a lot of discussion about why that is and what the causal factors are. But we don’t need to get into that today. But I do think that you need to look at that change in China’s approach to trace where we’ve come to. Now, that’s not to say that I think we should label China as an adversary. I mean, I authored this piece at the beginning of this kind of descent in relations saying China is not an enemy. But, you know, so I think there are factors in the U.S. that are making this worse than it needs to be. And but I think now, as Evan said earlier, the Chinese view almost every issue around the world through this prism of U.S. strategic competition, which they really see as U.S. strategic confrontation with China. And so that is going to color everything that we do going forward until there’s some prospect of an improvement in relations, which I unfortunately don’t see on the horizon. And the Ukraine situation is making it worse. So.

NAGORSKI: Yeah. Thanks for that question, Peter. And Susan—

MEDEIROS: Andrew, can I—

NAGORSKI: Yeah, go ahead, Evan. Yeah.

MEDEIROS: So, Peter, on your first question about sort of U.S. strategy and policy, I’d say that in the Obama administration we actually tried to have a strategy focused on strategic dialogue and cooperation to resolve some of these issues of security competition in the South China Sea and the East China Sea, as well as, you know, differences in norms. And the reality is, it didn’t really work. The Chinese used it to play for time and advantage. I think a variety of Trump administration decisions really accelerated the Chinese sense of America treating China as an enemy or a hostile power. So I can’t take any responsibility for Trump administration decisions, but I think a variety of statements and actions on their part—in particular speeches by the vice president, you know, the secretary of state basically calling for the people of China to separate from the Communist Party, right—that had an effect on Chinese perceptions. So as Susan said, there’s plenty of responsibility to spread around. But on the South China Sea, as somebody that was at the NSC at the time, you know, Chinese behavior implicates American interests—freedom of navigation, China’s adherence to its commitments under the U.N. Convention on the Law of the Sea, and in the case of the Philippines and Japan, the credibility of American security commitment. So I actually do think that there is an interest-based reason for the United States to have gotten involved. But, you know, this is not something we sort of did voluntarily in the sense of creating a problem where none existed. It was growing accumulation of Chinese assertions in and around the South China Sea in 2010 and then the East China Sea in 2012 that led the United States to get more involved. Over to you, Andrew.

NAGORSKI: Yeah. Thanks. These are all—I mean, I’m glad both of you raised these points. I think in any discussion about any issue, whether it’s China, whether it’s Ukraine, whether it’s Russia, particularly in Russia, it’s always, OK, what did—what did we get wrong? Well, the other side gets a lot of things wrong too always in these situations but, you know, you have to dissect each of them. I’d like to be sure we have enough time for other questions. So, Laura, perhaps the next question.

OPERATOR: We’ll take the next question from Hani Findakly.

Q: Thank you very much for this very good discussion.
My question is about China’s response to the broad and extensive sanctions that have been slapped on Russia. It would be unreasonable for China not to expect that they might be next, whether there is a confrontation or in the absence of a real confrontation. So my question is, what is China likely to do? What are the options for China to deal with issues such as—(inaudible)—the payment system and what have you? And what is that likely to lead to in term of the bifurcation or fragmentation of the international payment system and its implication to other countries outside of the U.S.?

NAGORSKI: Yeah. Very good question. And I think it’s one, you know, we’ve touched on the edges of that question. But I think the question of how far—how much can you really insulate yourself when you’re trying to be a global player. So, Zoe, do you want to quickly start with that?

LIU: Sure. I think this is a fantastic question. You know, it touches upon a lot of the issues that I’ve been working on for many years. I would just say that in a lot of the Chinese attempts to diversify its foreign exchange reserve actually goes all the way back to 2000, when China started to use this foreign exchange reserves to solve domestic banking crisis. And then as China accumulated its foreign exchange reserves, people start—the reason is not, in those days, not for anti-sanctions at all. The idea is how are we going to reduce opportunity cost of, you know, exposing all our asset in one basket, which is U.S. Treasurys, you know? The investment (in one ?), that’s terrible, but you know, there was domestic debate and it’s lead to, you know, 2007, the creation of more and more sovereign funds inside China. But now the problem is, you know, I would echo what Susan and Evan mentioned earlier, at least on the domestic front the speed and scope of Western sanctions—at least it would have strengthened a lot of these positions held by some Chinese scholars and policymakers that would be in favor of preparing for a forced financial decoupling from the United States, or even a financial war. You know, as Evan mentioned, you know, this actually happened before the Ukraine crisis. You know, right now on top of my mind there are two examples that I can give you.  One is former deputy director of Chinese Communist Party’s International Liaison Department. This gentleman’s name is Jiao Li. So he wrote this article and he elaborated that, you know, well, you know, China should and China must prepare to insulate itself from the hegemon, and so on and so forth. And, you know, his perspective is echoed by some of China’s top financial regulators, including some vice—the vice chairman of China’s Security and Regulation Commission. He wrote another article saying that, well, China must strengthen its defense against financial isolate and all that. So this leads to the issue of exactly what China could be doing. Now, what we have seen China has done is to establish its own domestic—its own analogy to SWIFT. And I would say China’s own version of SWIFT or the so-called CIPS system, is not just a financial messaging system. It’s also a settlement system. In many ways, it is the combination of SWIFT plus the Fedwire or the

CHIPS system. Meaning, you know, not only financial message can be sent but also the settlement can be done at an alternative non-dollar centered financial payment system. This echoes within a lot of the efforts to Russian have been doing. And we’ve been seeing, you know, Putin and the Russian finance minister talking about linking the Russian payment system and the Chinese payment system, combined with China’s banking current system. And now, you know, Russia’s talking about the BRICS payment system. And have they been talking about that before in some of the mechanisms? Again, they have been doing that. So to go back to your question, probably going forward we will see further consolidation of the emergence of, you know, alternative payment system. But that doesn’t mean that—

NAGORSKI: Zoe, can I jump in here? Just—yeah, I mean, but the basic thrust, not to get too deep into the technicalities of it, is—or, does everyone agree with the analysis that Zoe seems to be presenting, and Evan and Susan to a certain extent but I’m not sure you’re on board with that, the sanctions against Russia are a byproduct, which I’m sure would not be intended by the U.S. and its partners, is to strengthen that impulse of China to really buffer itself from any future sanctions. Is that a fair read?

MEDEIROS: Yes. But I would suggest we go one level deeper into that, Andrew. Because, number one, there’s a lot of discussion that the Chinese themselves are vulnerable to these sanctions. And the reality is, is the Chinese know the U.S. sanctions law exceptionally well, having dealt with it on Iran, and North Korea, and now this. So the Chinese are professionals at adhering to the letter of those sanctions. And so I don’t think that the Chinese believe that they’re about to be vulnerable, absent doing something dramatic like invading Taiwan. But the interesting thing about these sanctions as opposed to previous ones, like on Iran and North Korea, is these sanctions are not just dollar, but all the alternative currencies. So euro, yen, and pound sterling.
And so these particular sanctions create a real conundrum for China, because the only alternative is renminbi. And the Chinese simply aren’t going to be able to move enough of their trade and investment into purely renminbi terms. So I actually think that these sanctions, while they do increase the impulse for China to diversify away from dollar dependence, create a longer-term dilemma for them. But the reality is—and Adam Posen’s piece in Foreign Affairs about a month ago is great on this—the reality is the Chinese really don’t have any good alternatives because the renminbi is not freely convertible, because the Chinese don’t have a modern financial sector, and of course because the Chinese economy itself is facing a variety of cyclical and structural headwinds. This process by which China can reduce its dependence is going to be very slow and very clunky. And the Chinese know that Russia is really not a viable alternative, full stop.

NAGORSKI: And my takeaway from that is the dilemma in our title is justified, thank you. (Laughs.) All right, can we—Laura, can we have another question?

OPERATOR: We’ll take the next question from Lyric Hughes Hale.

Q: Yes. Hello. Thank you so much for this presentation.
I’m hearing that we are finally going to have a China policy, and that Secretary of State Blinken is going to be the person who’ll be announcing this momentarily. Is that correct? Why did it take so long? What do you think this stated policy will look like, especially in light of the war in Ukraine? Thank you.

NAGORSKI: Susan is someone who was most recently dealing with this in the State Department. Do you want to weigh in?

THORNTON: Well, yeah, sure. I think that there has been this talk about the rollout of Biden administration China policy. Not sure when it’s going to happen. Some of the rollout’s been delayed, and certainly amidst a crisis it’s hard to predict. But, you know, I would say that the policy has been pretty clear from the beginning, which is that, you know, we are claiming that we have this strategic competition with China, which pretty much means that, you know, most of the sort of traditional approaches that we’ve used with China in the U.S.-China relationship over the last thirty years are not really seen anymore as legitimate vectors for dealing with the relationship. And we are in a serious competition, and that means pushing back against China pretty much on anything that it seeks to do, I think, around the world. I mean, that’s been the pattern up to now. That’s what the Chinese see. They believe that we have a containment policy set against China. And I think it’s pretty hard, when you look at the various sets of actions on the ground, to refute that from the Chinese perspective. Now, I don’t think that’s what the policy will be outlined as officially, but I can’t see them moving away very much from this trifecta of cooperation, competition, and confrontation or adversity, because that’s where we’ve been from the beginning. And President Biden continually talks about the relationship in terms of stiff competition and autocracy versus democracy. So I can’t see us moving far off of that.
And the policies that flow from that are probably pretty similar to the things we’ve seen over the last year. So if it’s a new strategy that takes us in a radically different direction, I would be surprised. But maybe Evan has the inside scoop on this, since he’s in D.C.

MEDEIROS: So I agree with Susan’s response. I think the Biden team does have a China strategy. I think they’ve been quite explicit, both in word and deed. It’s largely focused on, number one, investing at home. Number two, building out our alliances. Number three, limited episodic diplomatic engagement with China. The tag word—or the terms, the bumper sticker that one hears in Washington is invest, align, compete. That’s been—so like you, Lyric, I’ve also heard that Tony Blinken’s going to give a speech very soon that lays all this out. But like Susan, this is going to be a speech that reflects a collection of ideas, experiences, and interactions with the Chinese. Perhaps Tony will include in it the so-called, you know, four nodes that Biden articulated in his video chat with Xi Jinping last month, where he talked about, you know, no regime change, no destabilizing China, no Taiwan independence. Susan and Zoe will remind me of the other two. But again, I see this as more of a reflection on what they’ve done to date and a reflection of their thinking. Nothing new.

THORNTON: No military conflict.

MEDEIROS: There you go.

NAGORSKI: OK. Thanks. Can we get the next question, Laura?

OPERATOR: We’ll take the next question from Carmen Chang.

Q: My question is I’ve been hearing from friends in China and on Chinese social media the saying that Chinese do not—we don’t want to have very strong neighbors, but you don’t want to have very weak neighbors either. So do you think that there’s any circumstances under which China would do more to help Russia? I agree with what, you know, people are saying, that Chinese are experts at the sanctions law and, you know, would not just carelessly jump into this. But is there a point at which China could intervene more if much more things happen in Russia to Putin, for example?

NAGORSKI: Zoe, do you want to try that one?

LIU: Sure. And thank you, Carmen, for this question on what China could have done or could be more involved in this. I would at least—from an economic and financial perspective, I would recommend a very excellent article written by my good colleague Benn Steil. He had this great article in Foreign Affairs talking about how China may have, you know, in many ways helped Russia hiding asset, you know, from a sanctions perspective. 
And, yes, you know, I would agree with you. You know, like on social media there are a lot of discussions with regard to what extent China doesn’t want a strong neighbor. And in many ways, I think, indeed, Beijing’s takeaway from this would probably be—you know, the prospect of a Russian defeat would—could be interpreted as a direct threat to its own territorial security and, in many ways, just Beijing’s ability to compete head-to-head in the geostrategic or geopolitical rivalry with the United States. And in many ways, if we follow this logic, hence, China cannot let that happen. But on the other hand, I would also, you know, look again into China’s domestic situation first before I evaluate how China is going to commit or overstretch itself. In the sense that right now Xi Jinping has another domestic sort of paradigm shift, if you will, in this war. And then there is all sorts of social structure and social problems emerge from these serious COVID lockdowns. So I would think, you know, in many ways at least at this particular moment what might occupy Chinese leaders more is domestic factors, rather than the Ukraine—Russia’s invasion of Ukraine. So in many ways, again, I don’t necessarily think there are—in many ways, China’s hand is quite tied. I hope that, you know, addressed your question.

NAGORSKI: That’s a—and I’d just add here, I think in that Xi-Putin relationship, we didn’t talk about in personal terms, you know, what—the domestic aspect, certainly for Putin of all this, is central. And retaining power, for Xi, is too. And I wonder if that isn’t the central bonding thing, that for both of them these kinds of conflicts are all or nothing. Certainly, it is for Putin, but I’d just toss that out there.
Evan, you were going to add something, I think, on that question?

MEDEIROS: Well, I would just say, it’s a tail risk, it’s not a headline risk. I think the real bottom line for the Chinese is preventing Putin from losing power. So I agree with Zoe, that the Chinese will provide as much economic and other support to Russia, if they believe that Putin’s, you know, grip on power is being lost. I think that is an existential threat to China and Xi. I don’t see any indication of that, but I’m not a Russia specialist. But I think that’s the real—the real bottom line. I mean, a Russia that sort of doesn’t do well in the war and sort of, you know, goes home with its tail between its legs and is weak—I think the Chinese could live with that, because that’s a Russia that needs China more. That’s a Russia that helps China in its long-term competition with the United States. But a politically unstable Russia where Putin loses power, I would say that’s the real bottom line for China. And they’ll do everything that they can to stop that—prevent that outcome.

NAGORSKI: All right. Laura, another question, please.

OPERATOR: We’ll take the next question from Mark Rosen.

Q: Yes. Thank you, to all of you.
I wanted to ask Evan in particular, and perhaps the others also, we look at this Ukraine war and we look at how Germany’s positioned, with its entire reliance upon energy from Russia. And we all probably conclude that they made some mistakes over the last several years. But then when you take it to the U.S. and you think about our dependence upon Chinese semiconductors, particularly Taiwanese semiconductors, but also China for manufacturing of most of our—many of our technology products, particularly Apple, are we doing enough to disengage and to become less reliant upon China for these key components? I know we are moving, slowly, with factories being built by Intel and Samsung and TMSC in the United States. But is it happening fast enough, given that we could end up in a situation similar to the position that Germany is in today?

MEDEIROS: So, Mark, excellent question. I don’t know the answer specifically. My guess is probably not. It really comes down to identifying where the key vulnerabilities are, right? Where are we dependent or overly dependent on supply chains in China? And I think you probably have to go sector by sector, right? Whether it’s technology—and within technology, what are we talking about? Semiconductors versus AI, you know, et cetera, et cetera? So dependency is a funny thing. And I think that the Commerce Department has a process by which they are looking at supply chain vulnerability and determining where critical dependencies exist. And obviously we need to fix that. So I would say that’s an important question. It’s only becoming more important in the context of Russia-Ukraine. And I think the U.S. government probably needs to do more.
It's an exceptionally difficult thing to do, because it requires the government and private industry to work in lockstep. And that’s a complicated thing to do. I know on semiconductors the Commerce Department, for example, sent a survey to a bunch of global semiconductor companies, starting with American semiconductor companies. And just the amount of information they’re willing to provide is limited because it’s proprietary. So you’re asking the right question. I think we still need more and better answers.

NAGORSKI: I’m almost thinking that is the right question where are we not overly dependent, unfortunately.

THORNTON: I was just going to say, a German colleague that I was talking to recently said that they know they’re overdependent on energy and they’re working on that, but there are other dependencies that we’re not focused on that will come to the fore once we solve the first one. So this is, you know, a feature not a bug of the globalized economy. And if we’re going to unwind it, we’re going to find a lot of hidden gremlins, I’m afraid.

NAGORSKI: Yeah. The unwinding’s going to be difficult, I think, for everybody. But that’s a pretty obvious point. But I’m afraid we’re just about at our time limit. So I want to really thank all three of you—Zoe, Evan, and Susan—for offering your insights on this, and to everyone in attendance. And I would note that the video and the transcript of today’s meeting will be posted on CFR’s website, so you can share that with anyone you’d like. So thank you all very much for your participation.

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This is an uncorrected transcript.