How deep is Ukrainian crisis' impact on China's economy?
What is the impact of the Ukrainian crisis on the global economy? Federal Reserve Bank of Richmond President Jeffrey Lacker believes that the risks coming from Ukraine are controllable, and their influence is limited. Many other economists hold similar views. In general, the Ukrainian crisis is neither a minor problem nor a huge event. After all, the Ukrainian economy is not big, and European energy supplies still depend on Russia, so it is not worthwhile for the U.S. to turn the Ukraine into a casus belli with Russia.
What do these concordant assessments and the responses from the external market mean to China?
First of all, the structure of China's energy imports can be improved. China relies on importing energy sources from the Middle East, whose transport corridor is the Strait of Malacca – the current limiting factor on China’s imports. If it were able to expand energy supplies from north-eastern and north western channels, it would certainly make China more secure in terms of energy and the current situation impacts on this strategy. The U.S. has begun to consider exporting its gas to Europe as a strategic response to Russian energy exports, although the White House has stated that even if the U.S approves gas supplies to Europe, this will not take effect until 2015. This gives Russia leeway in terms of finding new markets for its energy exports. From the perspective of geo-economy and market capacity, China represents an ideal prospect for Russia.
Secondly, China will have more opportunities to invest in Russia. According to data from the end of 2012, the top three foreign investors in Russia are Cyprus (USD76.74 billion), the Netherlands (USD 61.49 billion), and Luxembourg (USD 42.74 billion). China ranked fourth with investments of US 27.92 billion. China and Russia have a strong economic complementarity, China’s low-cost manufacturing and Russia’s rich natural resource represent mutual assets that can benefit each side. The relationship between Russia and Ukraine has deteriorated in recent years; in contrast, China and Russia are getting closer. Russia should repair the damage done to its interests by the situation in Ukraine, and plug any gaps if foreign investment is withdrawn. Russia has a long-term need for foreign investment which might offer an opportunity for Chinese investors
Thirdly, the arms industry is likely to profit from the situation. Ukraine was an important military-industrial base of the Soviet Union, and now occupies a prominent position in the global military industry. If the unrest continues to the extent that Ukraine joins Europe, its aerospace industry, shipbuilding industry and technology will possible expand into more countries, including China.
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