Will Putin's War Slow China's Growth?
Skip to content
Economics Mar 17, 2022

Will Putin’s War Slow China’s Growth?

The additional spike in food and energy prices caused by the Russia–Ukraine conflict could be devastating for China. But the country’s neutral political stance toward the war may also yield economic gains.

Investors discuss doing business in China

Yevgenia Nayberg

On March 5, China announced a GDP growth target for this year of about 5.5 percent, the lowest target since 1991. But that should not come as a surprise. In 2013, World Bank economists and the Chinese State Council projected that China’s annual growth rate would decline to 5 percent by 2030. This may still be an overestimate, given that growth rates during 2010–16 have been found to be inflated by 1.8 percentage points and that average growth in OECD economies is around 3 percent.

Back then, economists and policymakers also accurately predicted the main challenges to long-run growth in China, including increasing inequality, corruption, an aging population, inefficiency in large and often state-owned firms, and pollution. But no one could have foreseen the additional significant economic uncertainty stemming from the COVID-19 pandemic and now Russia’s invasion of Ukraine.

The pandemic has severely disrupted supply chains and pushed up prices everywhere. China is particularly worried about rising food prices, because the country is a net importer of food, with the bill totaling $133 billion in 2019. Supply problems and bad weather caused the price of vegetables in Chinese cities to increase by 30.6 percent year on year in November 2021. The price of eggs, a major source of protein for the middle class, rose by 20.1 percent over the same period.

China’s other main concern is the cost of energy, because it is also a net importer of coal, natural gas, and crude oil. Increased demand from Chinese factories resuming production during the post-pandemic economic recovery contributed to further increases in the prices of energy commodities. Chinese regulators responded by increasing the cap on subsidized electricity prices. But this was insufficient to offset the losses to electricity generators as coal prices and domestic demand continued to rise. As a consequence, power plants in several northeastern provinces shut down in September 2021, leading to sudden mass power outages and a cascade of economic and social disruptions.

The Chinese government has since increased the price cap even more and boosted domestic production of coal, using its large reserves. But China’s reserves of other energy sources are limited, and demand for energy is likely to continue to rise.

The Chinese government’s neutral political stance toward the Russia–Ukraine war may yield economic payoffs.

— Nancy Qian

These economic concerns, along with a desire to present a common front against the United States, help to explain China’s commitment to the “no limits” relationship with Russia that President Xi Jinping and Russian President Vladimir Putin proclaimed in early February. Energy is the economic centerpiece of Sino-Russian relations. In 2019, fuel accounted for about 17 percent, or $344 billion, of China’s total imports of $2.1 trillion. Russia has been the biggest crude-oil exporter to China since 2016 and is its fastest-growing supplier of natural gas. Twelve percent of all Chinese oil and gas imports now come from Russia.

To meet domestic energy demand and moderate its greenhouse-gas emissions, China plans to increase the share of natural gas in its primary energy consumption to 15 percent by 2030. Russia holds nearly a quarter of the world’s gas reserves and is the largest exporter. The two countries therefore agreed last month to a long-term contract under which Russian gas exports to China will increase to 48 billion cubic meters, or nearly 10 percent of China’s predicted gas consumption of 526 billion cubic meters, by 2025.

Russia’s invasion of Ukraine, and the subsequent Western-led economic and financial sanctions imposed on Russia, have suddenly cast a shadow of uncertainty over these plans. Besides exacerbating existing supply-chain disruptions, the wide-ranging sanctions have made it difficult for Chinese firms to operate in Russia. Most importantly, the war involves two of the largest global exporters of food and energy.

Ukraine and Russia together account for 28 percent of world grain exports, and wheat futures on the Chicago Mercantile Exchange have soared by more than 50 percent since the invasion. Similarly, oil, gas, and coal prices have surged due to supply disruptions and the sanctions against Russia. These inflationary pressures could have potentially devastating effects on the Chinese population, as well as on the country’s manufacturers.

But the Chinese government’s neutral political stance toward the Russia–Ukraine war may also yield economic payoffs if China becomes more important to Russia without overly offending major Western trading partners such as the U.S. and Australia. Russian food exports in 2021 totaled $38 billion, of which $4.7 billion went to the European Union. So, Chinese food-price inflation could be moderated if EU sanctions cause Russia to divert some of its food exports to China on favorable terms.

Similarly, China is likely to gain more favorable terms for its energy imports as the war continues and other countries reduce their purchases of Russian oil and gas. The U.S. has banned imports of Russian oil, and other countries are likely to follow suit. Likewise, the EU plans to reduce its reliance on Russian natural gas by two-thirds this year and seek alternative suppliers and energy sources to compensate.

While the switch away from gas will take time, it seems inevitable that Russia will need to look for other buyers soon. Given that oil and gas accounted for 60 percent of Russia’s exports and generated 39 percent of its federal budget revenue in 2019, China will be in a strong bargaining position.

Ultimately, the Russia–Ukraine war’s impact on the Chinese economy will depend on the duration of the conflict and the extent of the devastation that it causes in Ukraine and Russia, and other parts of the global economy. It will also depend on how much goodwill remains between China and Ukraine’s Western allies when the fighting stops.

Clearly, 2022 will be a year of uncertainty in which China has limited control over its rate of economic growth. New risks arising from the war in Eastern Europe have compounded the challenges that policymakers anticipated owing to the slow and uneven post-pandemic recovery. At this point, how China and the rest of the global economy will fare in the coming months is anyone’s guess.


This article originally appeared in Project Syndicate.

Featured Faculty

James J. O'Connor Professor of Managerial Economics & Decision Sciences

Most Popular This Week
  1. One Key to a Happy Marriage? A Joint Bank Account.
    Merging finances helps newlyweds align their financial goals and avoid scorekeeping.
    married couple standing at bank teller's window
  2. Take 5: Yikes! When Unintended Consequences Strike
    Good intentions don’t always mean good results. Here’s why humility, and a lot of monitoring, are so important when making big changes.
    People pass an e-cigarette billboard
  3. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  4. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  5. Entrepreneurship Through Acquisition Is Still Entrepreneurship
    ETA is one of the fastest-growing paths to entrepreneurship. Here's how to think about it.
    An entrepreneur strides toward a business for sale.
  6. Take 5: Research-Backed Tips for Scheduling Your Day
    Kellogg faculty offer ideas for working smarter and not harder.
    A to-do list with easy and hard tasks
  7. How to Manage a Disengaged Employee—and Get Them Excited about Work Again
    Don’t give up on checked-out team members. Try these strategies instead.
    CEO cheering on team with pom-poms
  8. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  9. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  10. The Appeal of Handmade in an Era of Automation
    This excerpt from the book “The Power of Human" explains why we continue to equate human effort with value.
    person, robot, and elephant make still life drawing.
  11. 2 Factors Will Determine How Much AI Transforms Our Economy
    They’ll also dictate how workers stand to fare.
    robot waiter serves couple in restaurant
  12. When Do Open Borders Make Economic Sense?
    A new study provides a window into the logic behind various immigration policies.
    How immigration affects the economy depends on taxation and worker skills.
  13. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  14. Sitting Near a High-Performer Can Make You Better at Your Job
    “Spillover” from certain coworkers can boost our productivity—or jeopardize our employment.
    The spillover effect in offices impacts workers in close physical proximity.
  15. How the Wormhole Decade (2000–2010) Changed the World
    Five implications no one can afford to ignore.
    The rise of the internet resulted in a global culture shift that changed the world.
  16. What’s at Stake in the Debt-Ceiling Standoff?
    Defaulting would be an unmitigated disaster, quickly felt by ordinary Americans.
    two groups of politicians negotiate while dangling upside down from the ceiling of a room
  17. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  18. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  19. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  20. 3 Traits of Successful Market-Creating Entrepreneurs
    Creating a market isn’t for the faint of heart. But a dose of humility can go a long way.
    man standing on hilltop overlooking city
More in Economics