China shifts stance on Ukraine

This is an audio transcript of the FT News Briefing podcast episode: China shifts stance on Ukraine

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, March 2nd, and this is your FT News Briefing.

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The company behind the Nord Stream 2 pipeline has reportedly become insolvent, and China has shifted its stance on Russia’s attack on Ukraine.

Eleanor Olcott
Some analysts were speculating that Beijing was taken somewhat by surprise by Putin’s actions last week. They are now scrambling to try and be a peacemaker in global politics.

Marc Filippino
Plus, cryptocurrency exchanges are coming under pressure to shut down ties to Russia. I’m Marc Filippino, here’s the news you need to start your day.

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The pipeline project built to pump Russian gas across the Baltic Sea into Europe could be dead. A Swiss official yesterday said employees of the company behind the Nord Stream 2 pipeline received termination notices. The company appears to be insolvent and is facing, “massive payment difficulties”. This comes a little over a week after the US treasury issued a sanctions order against the pipeline. The FT’s Sam Jones explains the significance of the pipeline’s potential demise.

Sam Jones
Nord Stream 2 has really been a sort of centrepiece of the diplomatic discussion around deterrence and what Europe needs to do to stand up to Russia. This is a pipeline that is designed to bring Russian gas to Europe and to circumvent Ukraine in doing so. And so really, in that sense, to make Europe even more dependent, according to critics at least, on Russian gas. So when the whole discussion has heated up about, you know, how Europe needs to take a bolder stance against Russia, Nord Stream 2 has really been at the centre of this kind of conflict between security concerns versus economic interests.

Marc Filippino
So now with Nord Stream 2 potentially all but dead, is the idea just to isolate Russia even more? Or can we see this just as a casualty of the conflict?

Sam Jones
Well, I mean, based and not least on actions that Germany has taken, the pipeline comes into Germany, where the government under Olaf Scholz has very recently declared that it won’t certify the pipeline and therefore it won’t be operable. We’ve known for the last few days that Nord Stream 2 is going nowhere. So this, in a sense, is more of a symbolic development. But nevertheless, obviously a very important one because what it would appear to say is that this project is dead for good, whether the Germans certify it any time soon or not.

Marc Filippino
Will this have a lot of impact on energy markets, Sam?

Sam Jones
Yeah, I don’t think this will have a huge impact on the energy markets right now. I mean, obviously most energy traders are looking specifically at the actual flows of gas and the likelihood about how they will be interrupted or not in the coming weeks or days. And so the fact that Nord Stream isn’t coming online is not necessarily the biggest news. But the long-term picture for prices is, you know, is basically being confirmed as very different to what it would have been even a few weeks ago.

Marc Filippino
Sam Jones is the FT’s Austria and Switzerland correspondent.

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There has been a shift in China’s stance towards Russia’s invasion of Ukraine. Beijing initially didn’t take sides, but yesterday it indicated it was ready to play a role in finding a ceasefire. Here’s the FT’s China correspondent Eleanor Olcott with more on this development.

Eleanor Olcott
So Ukraine’s foreign minister and China’s foreign minister held a phone call on Tuesday, where basically both sides agreed that China would establish a role trying to end the conflict through negotiations, that it would kind of take on the role of a peacekeeper in resolving the conflict between Russia and Ukraine. And for the first time, we have this quite strong language from China condemning the conflict. It didn’t use the word “invasion”, as other countries have used to condemn Russia’s actions. But it said it deplored the violence and suffering by civilians in Ukraine.

Marc Filippino
So, Eleanor, how significant is this? Are these just empty words?

Eleanor Olcott
This is important because China, while they have not said explicitly that they condemn Russia’s actions, have previously been happy and willing to support the Kremlin’s line on this. Previously, the Chinese state media also said that Russia’s invasion was just a series of military exercises. What we’re seeing now is a recognition at the highest levels in China that there is a conflict going on and that it is the highest priority for Chinese officials to resolve this through negotiations. And it’s also significant because it’s the first indication we have from the Ukrainian side that they’re leaning on its relationship with China to help them fast forward the negotiations to end this conflict with Russia.

Marc Filippino
Is there anything else that might be motivating Beijing to shift its position?

Eleanor Olcott
China has come under a lot of criticism domestically for its failure to get its citizens out of Ukraine, and particularly a lot of Chinese students who have, are doing their study abroad programmes in Ukraine. And if you think about the fact that China, in the weeks leading up to the invasion, seemed complacent about the risk. What we’ve seen over the past few days is this kind of scrambling by Beijing, both to get their citizens out and also to make sure that there’s not a PR crisis domestically by the fact that you’ve got all of these people stuck in Ukraine. And in fact, I think Ukraine’s managed to leverage its own position in helping these Chinese nationals to get out of Ukraine and buy some goodwill with China on that front.

Marc Filippino
Eleanor Olcott is the FT’s China correspondent.

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Cryptocurrency exchanges are coming under pressure from western governments to block transactions with Russia. The concern among officials is that cryptocurrencies will allow Russians to avoid sanctions aimed at shutting the country out of the global financial system. To talk more about this I’m joined by the FT’s Josh Oliver. Hi, Josh.

Joshua Oliver
Hey, Marc.

Marc Filippino
So Josh, can you talk about how exactly Russians are using bitcoin?

Joshua Oliver
Yes. So what we’ve seen is that Russians are using not just bitcoin but all cryptocurrencies to basically convert their roubles into crypto, and that can serve as a way to hold on to the value of those assets when the rouble is in freefall. And it’s also potentially a way to transfer money out of the country.

Marc Filippino
So Josh, going back to the sanctions, is using bitcoin a violation of sanctions? Or is it more like they’re getting around the sanctions?

Joshua Oliver
It all depends on how you use bitcoin. You know, there are ways that you could be using cryptocurrencies that do specifically violate sanctions. And what crypto exchanges have said is that they are intending to block specific violations of sanctions. But also what’s happening, you know, in a more general sense, is that there’s a potential for crypto to be used as an alternate way to transact with Russia in a way that doesn’t necessarily specifically violate the sanctions, but does undermine the effort to cut Russia off from the global financial system.

Marc Filippino
So then, what do western powers want crypto exchanges to do right now?

Joshua Oliver
So, yeah, a senior Ukrainian politician has sort of led the call here and called on all major crypto exchanges to cut Russia off across the board. In the west, you’ve seen politicians like Liz Truss and also American officials express concern that crypto could be used to evade sanctions. And so what people want to see is the crypto exchanges enforcing the sanctions, which they’ve said they intend to do. But also, some people want to see them go further than the letter of the sanctions and cut off Russia altogether.

Marc Filippino
But, you know, this kind of flies in the face of the philosophy that underpins cryptocurrency, right? I mean, this decentralised libertarian belief is the thing that attracts people to it.

Joshua Oliver
Well, exactly. I mean, you could say that the, you know, the original purpose of cryptocurrency is for people to be able to transact without any kind of centralised authority or relying on banks or a financial system whatsoever. But the reality of crypto today is that most transactions are still going through centralised crypto exchanges who do have the power to make decisions about who’s allowed to send money where.

Marc Filippino
So if cryptocurrency exchanges don’t follow the requests by western governments, could they face penalties?

Joshua Oliver
If crypto exchanges are violating the sanctions, then they could see very severe penalties. And lawyers that we spoke to also point out that one thing about crypto is that it never forgets. I mean, those transactions are they’re recorded on the blockchain for all to see. And in some cases, you know, investigations of crimes involving crypto across the board will come back to transactions years later and use that to track people down. So crypto exchanges are on the hook for any transactions that violate sanctions. What’s a lot less clear is what consequences crypto exchanges could face in terms of allowing people to transact with Russia in a way that isn’t specifically prohibited by the sanctions, but is still maybe contrary to what people would like to see them do.

Marc Filippino
Joshua Oliver is the FT’s asset management correspondent. Thanks, Josh.

Joshua Oliver
Thanks, Marc.

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Marc Filippino
You can read more on all of these stories at FT.com. If you aren’t a subscriber yet, you can read our key Ukraine coverage for free. We’ve taken down the pay wall there. Just visit FT.com/freetoread. Again, that’s FT.com/freetoread. We’ll also have a link to that in the show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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