China 'propping up Vladimir Putin's war machine with the West's help'

China has become a “crucial lifeline” for Vladimir Putin’s war machine – and Russia is using its ally as a means of circumventing Western sanctions, the author of a damning new report has warned.

Olena Yurachenko, a senior analyst at the European Security Council of Ukraine (ESCU) think tank, also said there was a compelling argument for similarly sanctioning Chinese companies – while acknowledging the imposition of such punitive measures would be far from simple.

The report, entitled Third Best Option: China’s Rising Role in Russian Access to Critical Industrial Equipment, was published on Monday.

This concludes that as a result of a lack of domestic production, Russia’s dependence on external supplies of industrial equipment and relevant components is between 70 and 90 percent.

Sino-Russian trade cooperation is based on “three workarounds”, which still depend on Western input, the report points out. These are supply of machine tools manufactured in the countries of the sanctions coalition to Russia through China as a re-export hub; exports to Russia of machines manufactured at the factories of Western companies in China; and Russian imports of Chinese machine tools, the production of which depends on Western components, technologies and expertise.

Ms Yurchenko told Express.co.uk: “China has become a crucial lifeline for Russia’s military capabilities, significantly increasing its support by exporting dual-use items – goods that have both commercial and military applications.

“China’s role in supplying Russia with critical technologies has grown exponentially recently.”

By 2023, China had been responsible for roughly 90 percent of Russia’s imports of goods which are prioritised under the G7’s high-priority export control list, a sharp increase from just 32 percent in 2021, Mr Yurchenko explained.

She continued: “One of the most significant aspects of this support is in the area of machine tools, particularly CNC (Computer Numerical Control) machines, which are essential for high-precision manufacturing.

“The value of machine tool exports from China to Russia surged tenfold, reaching $68 million by mid-2023.”

The sharp increase was reflected in the fact that by July 2023, more than half of Russia’s CNC machine imports were sourced from China, compared to just 12 percent prior to the invasion of Ukraine in February 2022, Ms Yurchenko pointed out.

She said: “This trend underscores China’s critical role in sustaining Russia’s military-industrial complex, particularly as Western sanctions have cut off direct access to similar technologies from other sources.

“US officials have acknowledged this, noting that a significant portion of the machine tools that Russia now relies on come from China.

“Without these Chinese-supplied components, particularly given the Western sanctions that have cut off direct access to such equipment from other sources, Russia’s war machine would likely face significant operational difficulties.”

CHC machines are integral to Russia’s ability to maintain and expand its production capabilities, enabling it to manufacture the precise components needed for weapons systems, vehicles, and other military equipment.

In addition, the automation and precision provided by CNC machines is crucial for producing advanced military technologies, hence ensuring Russian military equipment remains reliable and effective despite heavy usage.

Ms Yurchenko stressed: “Furthermore, these components allow Russia to circumvent Western sanctions by relying on Chinese and other third-party intermediaries to access technologies that would otherwise be out of reach, thereby keeping its military-industrial complex operational despite international efforts to cut off its supply of critical technologies.”

In effect, China was enabling Russia to get around sanctions enforced by the West in response to its invasion of Ukraine – but this was only “one dimension of the problem”, Ms Yurchenko said.

Chinese machine tools entering Russia could only be produced with Western technology, with 13 of the 16 largest Chinese CNC machine tool manufacturers exporting to Russia maintaining close ties with countries which were members of the “sanctions coalition”, for example by opening R&D centres in Germany or Japan.

Ms Yurchenko added: “There is a strong argument for sanctioning Chinese companies that facilitate this process.

“The report highlights that many Chinese entities involved in supplying Russia with critical technologies are not currently sanctioned despite clear indications that they are aiding Russia’s military efforts.”

Nevertheless, taking remedial action is far from straightforward, given that Chinese companies are deeply integrated into global supply chains, with their products often incorporating components from multiple countries, including Western nations.

Ms Yurchenko explained: “Sanctioning these companies could have wide-ranging repercussions, potentially disrupting global trade and affecting industries beyond those directly linked to military production.

“Additionally, imposing sanctions on Chinese firms could provoke retaliatory measures from China, leading to broader economic and political conflicts.

“Furthermore, there is often a lack of consensus among Western countries on how to approach sanctions against Chinese companies. This disunity can weaken the effectiveness of any sanctions regime and create loopholes that can be exploited by both Chinese and Russian entities.”

ESCU’s analysis suggests manufacturers of dual-use goods, particularly CNC machines and related components, are not sufficiently meticulous when it comes to blocking Russia’s access to critical technologies.

Ms Yurchenko said: “While Chinese producers are looking for ways to occupy a free niche in the Russian market, Western companies do not control their distribution networks, the activities of their subsidiaries, or the ultimate destination of the final products, of which their components and software become a part.

Consequently, manufacturers and their subsidiaries may ultimately undermine the effectiveness of existing sanctions instruments – for example those used in the financial sector.

Ms Yurchenko highlighted two broad objectives: encouraging Western manufacturers to monitor exports of their products to China more closely; and discouraging Chinese manufacturers from cooperating with Russian market either directly or indirectly.

She said: “Achieving these two goals is only possible with the large-scale use of leverage underlying economic statecraft, namely the dependence of both Western and Chinese manufacturers on constant access to foreign expertise, technology, investment, markets, etc.

“The members of the sanctions coalition need to urgently close these gaps to put the instruments into operation as quickly as possible or create a new legal framework that would fully meet the needs and threats of the time and pose a deadly threat to violators, as happened to banks at the end of last year.

“Implementing these measures would require time, likely several months to years, depending on the level of international cooperation and the complexity of the supply chains involved. The effectiveness of these measures would depend on how quickly they can be enforced and the extent to which they are coordinated globally.”