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War in Ukraine: Does China benefit?

By Silas Dreier and Marina Rudyak
Silas Dreier, coordinator of the Global China Conversations at the Kiel Institute for the World Economy’s China Initiative, and Marina Rudyak, interim professor of Chinese politics at Goethe University Frankfurt.

When Russia invaded Ukraine on February 24, 2022, discussions began almost concurrently in the media. Which side is China on? What role should it play in the conflict, according to journalists? Is an invasion of Taiwan, long thought unlikely, just as imminent? Six months later, it is clear that the invasion is not in China’s interest, nor will it inspire China to invade Taiwan. Why not? Two central arguments are always raised in discussions about an invasion: semiconductors and political motives.

The US sanctions against China in the high-tech sector are hindering China’s access to high-end semiconductors. Although this has spurred massive new investment in China’s chip sector, it will probably take at least another ten years before the country is truly at the forefront and able to substitute the imports necessary for production, analysts believe. Taiwan, to which the People’s Republic has laid claim since its founding, holds a global market share of 55 percent with TSMC (compared to China’s 8 percent) and is thus an integral part of global semiconductor production. So the idea is obvious: With an invasion, access to necessary cutting-edge technologies could be secured and, at the same time, the largest competitor and its know-how could be integrated into the country’s own semiconductor production.

Wolf warrior rhetoric remains omnipresent

But it is not as simple as it sounds. Taiwan’s chip production is rooted in regional value chains. Key components are shipped from Japan and South Korea. Even if China were able to procure them, how would the newly conquered Taiwanese top engineers be persuaded to work for the People’s Republic? They are more likely to emigrate to the West, along with their knowledge. An invasion for semiconductors would therefore hardly be a gain for China. But what about political motives?

International media repeatedly speculate that Xi Jinping secured his third term in office with the promise to “finally return Taiwan to the motherland”. It is therefore logical that the Russian breach of international law opens the window for China to do the same to Taiwan. What is overlooked: China does not need Russia to invade Taiwan. The 2005 anti-secession law already declares that the People’s Republic will resort to military action should Taiwan take any steps toward independence. What is also often forgotten, given the ubiquitous wolf-warrior rhetoric emanating from the Chinese Foreign Ministry and the state-run Global Times newspaper: Economic growth and prosperity are the central pillar of the party-state’s legitimacy. “You’ll get rich and stay out of politics in return” – with this contract, the CP has ruled through since Deng Xiaoping.

Stability is paramount

The massive resistance of the people of Ukraine against the Russian invaders has shown that all the theories of a swift conquest were an illusion. Taiwan, as should be clear by now, would fight back no less determined. Meanwhile, China is already fighting against time with its zero-Covid policy. There are massive protests nationwide, of which only a fraction make it into the Western media. The real estate crisis has also reached a new high. Meanwhile, apartment owners in over 100 cities are refusing to pay their loan installments. Southwest China is experiencing the longest heat wave ever, with massive drought, water shortages and power outages. In traditional China, economic crises, protests and weather disasters were a sign that the dynasty had lost the heavenly mandate. A Taiwanese incursion, should it turn into a lengthy and costly conflict, would not only pose a long-term threat to the legitimacy of the political leadership in Beijing. It could mean the end of party rule. In conclusion: An invasion would not be a gain for China, both economically and politically.

By the same token, the invasion of Ukraine was not a win-win for China, as its military, geopolitical, and economic consequences are also felt in Zhongnanhai. The burning of Russian troops on the Black Sea indeed reduces potential military threats from the regions above the Amur. But people certainly feel more threatened than before the invasion. There is NATO’s northern enlargement on the one hand, but also the allies’ new claim to focus more on China as a threat. Even the idea that Russia might be successful in Ukraine is likely to cause Beijing headaches. After all, should Russia win in Ukraine against all odds, Central Asia could be the next target of Putin’s revisionism. China has been massively investing in the oil and gas resources of the region that borders its west. Not only would these interests be put at risk, but resistance fighting and other instabilities could easily spill over the borders into Xinjiang and jeopardize what the Communist Party sees as a currently stable situation in the autonomous region.

Ukraine war brings uncertainty for China

And China has also underestimated the economic reactions from Ukraine and the EU. Rising energy prices and the impact of sanctions are putting pressure on the global economy. Combined with China’s real estate and banking crisis, as well as the extreme weather of recent months, this further exacerbates the political situation for the leadership.

So, just before the 20th CP Congress on October 16, Beijing is under more pressure than it has been in a long time. Not only has a military invasion of Taiwan been complicated. The economic integration of Taiwan, which was the preferred objective, has also become more distant due to the rapid deterioration of relations with Taiwan and the United States. The renewed rallying of the allies complicates China’s geopolitical ambitions, and Russia’s unpredictability threatens the stability of the western regions. Last but not least, economic difficulties and the failure of the zero-Covid policy are threatening Xi Jinping’s position within the Party. At the Party Congress, he is expected to be re-elected to his third term as Party Chairman. For him, however, the war in Ukraine has brought one thing above all: uncertainty.

This article is part of the “Global China Conversations” series of the Kiel Institute for the World Economy (IfW). On Thursday, September 8, 2022 (11:00 AM CEST), Julian Hinz, trade and sanctions expert at the Kiel Institute for the World Economy and junior professor of International Economics at Bielefeld University, and Marina Rudyak will discuss the topic, “Can China Achieve its 2022 GDP Growth Target of 5.5 Percent.” China.Table is a media partner of the event series.

Marina Rudyak is an interim professor of Chinese politics at Goethe University Frankfurt and an academic assistant for sinology at Heidelberg University. Her research focuses on Chinese development policy, Global China and party discourses of the Chinese Communist Party.

Silas Dreier is coordinator of the Global China Conversations at the China Initiative of the Kiel Institute for the World Economy. He is also working on his Master’s degree in China Business and Economics at the University of Wuerzburg.

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