Why China’s pragmatic peace plan for the Ukraine conflict may also be the best

China is the only mediator able to offer real economic incentives to all parties to the conflict
A ceasefire that allows sanctions erosion to some extent would not only enable parties to start recovering economically, while saving face publicly, but also reduce disruption to global supply chains

Dan Pototsky

Published: 8:15am, 23 May 2023

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As China actively promotes itself as a peace negotiator in the Russia-Ukraine conflict, special envoy Li Hui began a tour of Russia, Ukraine, Poland, France and Germany last week. In a statement after his visit to Ukraine, he said there was “no panacea” to the crisis, but called on the parties to the conflict to “start with themselves” and “create conditions to stop the war and talk”.

While China’s provisions for peace, as spelled out in a 12-point blueprint, seem quite general, the initiative may have the best chance of success. China is the only mediator able to offer real economic incentives to all parties to the conflict.

The Covid-19 pandemic caused significant disruptions to economies and supply chains. The United States and the European Union both responded to the pandemic by increasing state debt, lowering interest rates and injecting liquidity into markets. But this means they will not have much of a safety buffer in the face of future disruption.

China, on the other hand, had a more measured economic response to the pandemic. Now that it has lifted its zero-Covid policy, its economy is recovering fast.

In 2022, when the conflict in Ukraine broke out, the EU, the US and their allies miscalculated the effects of the unprecedented sanctions they imposed on Russia. While Russia accounts for only about 2 per cent of world gross domestic product, it is a major exporter of the raw materials that power global industries.

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The sanctions pushed Russia towards the East, with China becoming a major economic partner. Meanwhile, the European Union has fallen into an energy crisis and dependency on American gas. European companies, including steel and chemical makers, have been shifting operations to the US, attracted by stable energy prices and tax incentives. But the US is not really in a position to help the EU when it has a debt crisis of its own.

China is the only global economic actor today that can offer benefits to all sides of the conflict in Ukraine, and to most of the rest of the world; it has the economic leverage to push both Russia and Ukraine.

Although China’s peace plan has received a mixed reception, it is worth noting that three points of the position paper released by the Chinese foreign ministry mention clear economic objectives: facilitating grain exports, stopping unilateral sanctions, and keeping industrial and supply chains stable.

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Specifically, China states its support for the Black Sea Grain Initiative signed by Russia, Turkey, Ukraine and the United Nations, and highlights its own cooperation initiative on global food security as a possible solution to the global food crisis.

While this is more of a political statement, food cooperation could help reduce food price inflation in China and Europe, and resolve a food crisis in Africa – where Europe, China and Russia have strategic interests. Also important is bringing investment back to Ukraine, where China is a major holder of agricultural land.

With regard to supply chains, the paper says: “Joint efforts are needed to mitigate the spillovers of the crisis and prevent it from disrupting international cooperation in energy, finance, food trade and transportation and undermining the global economic recovery.” Such efforts would give the EU a chance to rebuild its energy systems free of US pressure, for example.

In urging the lifting of unilateral sanctions, China’s position is that individual countries should stop abusing sanctions, as these measures put extra pressure on the global economy, affecting countries not involved in the conflict. Of course, if supply chains are fixed, a Chinese economic recovery would also boost the global economy.

For Russia and Ukraine, a peace settlement would bring the end of bloodshed. While no one expects the sanctions on Russia to be lifted completely in the event of peace, a partial easing could mean the return of hi-tech imports from the European Union, which Russia is heavily dependent on – to the benefit of EU members. The revival of Ukraine’s economy would also benefit the rest of the world.

The US has been a major beneficiary of the conflict so far, and has more to lose in a peace settlement. It is no surprise that it has been dismissive of the Chinese initiative. But what does the US have to offer those who are suffering?

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Meanwhile, Turkey and India continue to trade with Russia. Economies such as the United Arab Emirates, Singapore, Hong Kong and Kazakhstan have benefited to some extent as Russian businesses seek to sidestep sanctions, and would welcome a removal of the threat of secondary sanctions.

China’s peace proposal does not resolve the core of the conflict in Ukraine; nor does it address contradictions in the global economy. The trends that have been unfolding in recent years – US-China rivalry, deglobalisation, the technological race between the world’s major economies – have only been made been clearer by the conflict in Ukraine.

What the Chinese plan offers is a chance to create the conditions for the competition to continue, without devastating the global economy. There will be nothing left to compete for, if the world lies in ruins.

Politically speaking, a ceasefire will not change the status of the conflict parties. Pragmatically speaking, however, it will allow sanctions erosion to an extent, so that the parties may start recovering their economic losses, while saving face publicly.

While freer international trade will give the world economy a chance to recover, it can only be brought back if such trade doesn’t contribute directly to war budgets.

Dan Pototsky is a graduate of Zhejiang Gongshang University, a consulting adviser on markets and a junior research specialist at the Innovation Center for the Institute of World Economy and International Relations (RAS), in Moscow, Russia