A China-led development bank has suspended all business with Russia and Belarus, a possible sign of the limits of Beijing’s support for Moscow as it faces sanctions and censure over its war in Ukraine.
The Asian Infrastructure Investment Bank (AIIB) said it put all activities related to the two countries on hold in light of “the evolving economic and financial situation”.
“Under these circumstances, and in the best interests of the Bank, Management has decided that all activities relating to Russia and Belarus are on hold and under review,” the Beijing-based institution said in a statement on Thursday.
The multilateral development bank, which has 105 members worldwide, did not elaborate on the reason for its decision, but extended “its thoughts and sympathy to everyone affected”.
“Our hearts go out to all who are suffering,” the bank said.
The announcement comes after several Chinese state-owned financial institutions, including the Bank of China, ceased financing for deals involving Russian commodities.
Gary Ng, a senior economist at Natixis in Hong Kong, said the AIIB’s move is “symbolic” as the bank has been financing just two projects in Russia to the tune of $800m and none in Belarus, which is supporting the Russian war effort.
“Even though most of the cross-border lending from China to Russia may take place with policy banks, this is still another example that China may not unconditionally support Russia as it would be weighing its own benefits and costs from any geopolitical move,” Ng told Al Jazeera.
“The retreat of the AIIB shows the pressure of global financial sanctions on Russia has become more apparent in supranational organisations,” Ng added.
Growing China-Russia ties
China and Russia have become increasingly close in recent years, often aligning in opposition to perceived interference by the United States and its allies.
Last month, Chinese President Xi Jinping and Russian President Vladimir Putin declared that the friendship between their countries has “no limits” and no “forbidden” areas of cooperation.
Beijing has declined to condemn Moscow’s invasion of Ukraine, abstaining from a United Nations resolution calling on Putin to withdraw his forces, and expressed its opposition to “all illegal unilateral sanctions”.
Chinese customs authorities last month lifted import restrictions on Russian wheat, an industry worth some $7.9bn annually, fuelling speculation the Chinese market could emerge as a key economic lifeline for the beleaguered Russian economy, which is facing unprecedented international isolation.
The two sides have also ramped up cooperation in energy, including the signing last month of a 30-year contract for Russia to supply gas to China via a new pipeline.
Despite deepening ties, Beijing is widely viewed as reluctant to openly violate sanctions, which could put it at risk of being cut off from Western export markets and the US dollar-centric international financial system.
China’s trade with Russia came to $146.9bn in 2021, about one-tenth of its combined trade with the US and European Union.
Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney, described the AIIB’s decision as significant “even given the little work done in Russia” by the development bank.
“It shows China backing away from Russia and the ‘no limits partnership’ between Xi and Putin,” Harcourt told Al Jazeera.
However, Peter Lewis, a former investment baker who runs a consultancy in Hong Kong, questioned whether the AIIB’s decision suggests any weakening of Beijing’s support for Moscow, saying the bank has an obligation to make sound financing decisions that are independent of its shareholders.
“Beijing will frame this as an independent decision made by the AIIB for purposes of financial stability and prudence,” Lewis told Al Jazeera. “However, I am sure that Beijing is getting increasingly alarmed by what is happening in Ukraine and there are frantic discussions going on with China’s foreign ministry. But this decision by the AIIB is not really reflective of that.
China’s Xi launched the AIIB in 2016 as an alternative to the World Bank and International Monetary Fund, financial institutions perceived to be dominated by Western interests. China is the AIIB’s biggest shareholder, with 31 percent of the bank’s $20bn paid-in capital.