China In Eurasia

Welcome back to the China In Eurasia briefing, an RFE/RL newsletter tracking China’s resurgent influence from Eastern Europe to Central Asia.

I’m RFE/RL correspondent Reid Standish, and here’s what I’m following right now.

An Own Goal?

This was supposed to be the week in which U.S. Secretary of State Antony Blinken made a long-awaited trip to China and began dialing down tensions between Beijing and Washington.

Instead, an international incident over a Chinese spy balloon traversing the United States led to the trip being postponed and raised wider questions about deepening competition -- and the risk of escalation -- with China.

Finding Perspective: The episode may be more damaging to China’s leadership than to that of the United States.

Beijing has stepped up its diplomacy in recent months -- exemplified by Chinese leader Xi Jinping’s conciliatory tone during the Bali G20 summit in November -- as it emerges from its COVID lockdowns and looks to offer a friendlier face to quell growing resentment in some corners of the world stage.

Chinese officials have cast the balloon as a civilian meteorological device that drifted off course and decried the United States for shooting it down.

But many analysts also believe the incident has probably taken Xi and senior leaders by surprise.

Beijing gains little from sabotaging Blinken’s visit and squandering an opportunity to calm down growing military tensions and an expanding trade war with Washington, especially as China looks to kick-start its economy.

From this perspective, the balloon incident looks more and more like an own goal by Beijing.

Why It Matters: While this incident is the tip of the iceberg for the regular back-and-forth spy game between China and the United States, it’s Beijing that is left triaging the fallout.

In the United States, this has strengthened the already strong belief in Congress that China is a major threat to the country. Rising partisan hot air around the balloon also means that domestic politics will make it difficult for dialogue to pick back up any time soon.

In Europe, meanwhile, this incident will increase the growing scrutiny of China that has expanded amid Beijing's support for Russia following its invasion of Ukraine.

China has tried to signal some daylight between it and Moscow of late, but deep doubts remain in Brussels. Chinese Vice Foreign Minister Ma Zhaoxu recently visited Moscow and said that Beijing wants to work with Russia to advance their relationship this year. Xi is also expected to travel there later this spring for a state visit.

The balloon incident, coupled with continued outreach to the Kremlin, are likely to dispel any remaining illusions and make it even more difficult for Europe to straddle its sometimes awkward line between China and the United States.

Read More

• According to an analysis of Russian customs data by The Wall Street Journal and C4ADS, a Washington-based nonprofit that specializes in identifying national-security threats, “Chinese state-owned defense companies [are] shipping navigation equipment, jamming technology, and jet-fighter parts to sanctioned Russian government-owned defense companies.”

Expert Corner: China's Deflated Balloon Response

Readers asked: “Is there any evidence that this spy balloon saga in the United States caught the Chinese off guard?”

Here’s what Etienne Soula, a research analyst at the German Marshall Fund’s Alliance for Securing Democracy, has to say:

“It appears that the significance of the incident took the Chinese authorities by surprise. As late as [February 3], when foreign media questions made it apparent that the story was blowing up, the Ministry of Foreign Affairs was giving curt and dismissive answers instead of trying to get ahead of the story.

"Despite a few wolf warriors like the consul general in Belfast or the Chinese Embassy in France trying to set the tone on [February 4], the MFA only put out an official statement deploring what it deemed an [American] overreaction on [February 5]. In [the following] press conference, the Chinese MFA's spokesperson seemed once more thrown off by Western journalists’ questions about more Chinese balloons flying over other parts of the globe.”

Do you have a question about China’s growing footprint in Eurasia? Send it to me at StandishR@rferl.org or reply directly to this e-mail and I’ll get it answered by leading experts and policymakers.

Three More Stories From Eurasia

1. From Prague To Taipei

The Czech Republic elected a new president on January 28, and he’s already made waves by accepting a congratulatory phone call from Taiwanese President Tsai Ing-wen and risking backlash from Beijing in the process.

The Details: On January 30, President-elect Petr Pavel -- a former general who served as head of NATO's military committee from 2015-18 -- became the first elected European head of state to accept a call from Taiwan’s president.

Western leaders traditionally adopt an under-the-radar approach to dialogue with Taipei and refrain from direct political contact with Taiwanese authorities, typically limiting official exchanges to the level of civil servants or to individual parliamentarians.

But tensions over Taiwan and Beijing’s growing military threats toward the self-ruling island that it claims as its own territory, especially since Moscow’s invasion of Ukraine, have attached greater urgency to the issue and seen it grow in prominence across Europe.

All eyes have since been on the Chinese response, especially given that Pavel also raised the possibility on the campaign trail and in a tweet following the call of an in-person meeting with Tsai.

So far, Beijing’s reaction has been boilerplate, simply voicing displeasure with the call and urging Prague to uphold the “One China Principle.”

As RFE/RL’s Rikard Jozwiak and I unpacked in the last episode of the Talking China In Eurasia podcast, Beijing is in the process of a charm offensive with Brussels meant to mend ties with Europe and may now be cautious of reacting too harshly against the Czech Republic, which could jeopardize the attempted rapprochement with the European Union.

2. A Friendly Message

The Chinese spy balloon received wall-to-wall coverage across the United States and was unsurprisingly a top story inside China as well, but an analysis by the German Marshall Fund shows that Russian state media outlets moved quickly to help push China’s narrative.

What You Need To Know: According to the German Marshall Fund’s Hamilton 2.0 monitoring dashboard, which tracks how Chinese and Russian state-linked accounts are molding the online information space, Russian outlets echoed a similar line that derided the American decision to shoot down the balloon and that it was a purely civilian venture.

As stated in the Marshall Fund’s analysis, Russian state media “peppered their factual reporting with stories and memes that support the Chinese version of events,” with RT especially adopting the line that the Pentagon overreacted.

It’s another small case study that supports a larger trend of Chinese and Russian state media converging around big events and boosting each other's messaging.

3. An Energy Wildcard

Europe’s energy outlook is far more positive than many analysts predicted at the onset of winter, but as China reopens, European leaders are now looking to next winter, where a growing Chinese energy appetite could lead to price volatility as both Brussels and Beijing compete for supplies.

What It Means: As I reported here, the key element is uncertainty.

Gas prices have fallen back to prewar levels, but they could once again be affected next winter when China, reopening after years of COVID lockdowns, will be competing for a limited supply of liquefied natural gas (LNG) in an already tightening market, which when coupled with rising global demand for energy -- from oil to coal -- will likely hit consumers hard and contribute to soaring food and services inflation.

But there’s a growing list of unknowns, which makes planning ahead extremely difficult for European leaders, especially with questions still swirling over how big Chinese demand will be and how it will affect Europe.

According to one school of thought, Beijing's energy policy could actually indirectly support Europe.

An economic rebound in China will increase its appetite for LNG, but Beijing’s push to also increase pipeline imports of gas, use more coal, and expand its domestic gas production could contain the rise in Chinese demand on the LNG market in 2023.

According to this view, competition for LNG supplies will be limited, which when coupled with Europe expanding its pipeline imports from suppliers like Norway and Algeria, could head off gloomy predictions of a winter gas scramble.

Across The Supercontinent

Under Review: According to The Wall Street Journal, the U.S. Treasury and State departments are weighing new sanctions on a handful of Chinese surveillance companies over sales to Iran’s security forces as authorities use the technology to crack down on protests in the country.

Not Giving Up: A small but dedicated group in Kazakhstan continues to petition the government to help them learn the whereabouts of their relatives who they believe have disappeared into China’s vast internment system in Xinjiang, RFE/RL’s Kazakh Service reports.

From Canada To Xinjiang: Canada’s parliament voted unanimously on February 1 to start a refugee program to resettle 10,000 Uyghurs fleeing persecution in China.

Ottawa now has until May 12 to come up with the outline for the program that the motion passed by lawmakers says should start in 2024 and meet its target within two years.

Eyes On The Street: Kyrgyzstan’s Ministry of Internal Affairs has put forward a proposal to add 500 new facial recognition cameras in the capital, Bishkek, RFE/RL’s Kyrgyz Service reports.

The Central Asian country already installed its first batch of cameras through a Smart City deal with China in 2019. And while the ministry has not yet said where the new equipment will come from, promotional videos show cameras with a Tiandy logo, a Chinese supplier.

One Thing To Watch

Washington said it does not plan to return the debris from the Chinese spy balloon shot down on February 4 to Beijing.

For a note of comparison, an American spy plane had to make an emergency landing at a Chinese military base in 2001 after a Chinese jet collided with it in international airspace over the South China Sea. China did eventually return the aircraft, but only after spending months examining it.

It’s unclear so far if China has formally asked for it to be returned, but it’s clear that this incident will continue to offer more twists and turns down the line.

That’s all from me for now. Don’t forget to send me any questions, comments, or tips that you might have.

Until next time,

Reid Standish

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Nearly a month into 2023, Europe’s energy outlook is far more positive than many analysts predicted at the onset of winter.

Unseasonably mild winter temperatures across the continent and a successful pivot by the European Union away from Russian pipeline gas has seen supplies stabilize and prices fall from a previous peak.

Also helping to defy the gloomy predictions of energy shortages and stalled economic growth in the EU were increased imports of liquefied natural gas (LNG) and a new Baltic pipeline from Norway – developments that have allowed the continent to begin to replenish its gas reserves.

But European leaders are already turning their attention to next winter, where they could face a perfect storm of extreme weather, a reopened China with greater energy demands, and more volatile prices for consumers.

“When the Chinese economy picks up, it will not be easy to buy the planned volumes on the world market,” Fatih Birol, the head of the International Energy Agency (IEA), warned in a late January interview with the German magazine Handelsblatt. “No Russian gas, China’s comeback as an importer, little supply growth: these three factors make next winter a challenge.”

China, reopening after years of COVID lockdowns, will be competing for a limited supply of LNG in an already tightening market, analysts forecast, which when coupled with rising global prices for energy -- from oil to coal -- will likely hit consumers hard and contribute to soaring food and services inflation.

This leaves the world’s second-largest economy as a crucial but unpredictable wild card for the next European winter that leaders and officials will be watching closely.

“The situation is more about uncertainty and how hard next winter is to plan for,” Agathe Demarais, global forecasting director for the Economist Intelligence Unit, told RFE/RL. “There is concern about Chinese demand, the weather, and how to refill gas storage in Europe -- all of which can be difficult to predict. But the main concern here is about prices.”

A 'Lucky' Europe

Europe moved quickly following Russia’s February invasion of Ukraine to buy up global supplies of LNG as the EU pledged to cut Russian gas imports. According to the Oxford Institute for Energy Studies, European countries increased LNG imports from 83 billion cubic meters (bcm) in 2021 to 141 bcm in 2022.

In hopes of shielding consumers, governments across Europe have taken up vast energy bill support payments to consumers and businesses -- totaling a whopping $768 billion, according to Bruegel, a think tank focused on European policies.

Consumption within the 27-country bloc has also dropped due to rising prices and a warm winter. Europe has so far used about half as much gas from storage facilities at this point as in the preceding two winters, with forecasts pointing to continued mild temperatures ahead.

Yet, even with replenished storage facilities, concern is still high for next year.

Asian -- not just Chinese -- demand for gas is increasing, and will rise further as China’s economy -- and its consumption of LNG -- returns to its former pace. Timera Energy, a global consultancy, says the gas market is still operating on the edge of supply capacity, meaning sharp price fluctuations and volatility are still in the cards.

'Crunch Time'

As Demarais notes, Europe has been “extremely lucky” so far in terms of weather and has successfully moved to buy up LNG and replace its dependency on Russian gas with pipeline supplies from Algeria and Norway.

But questions around Chinese demand could be a key factor for determining inflation and pricing that could make next winter “crunch time” for Europe, she adds.

As gas prices spiked last year after Moscow cut supplies to Europe following its invasion, the bloc began to import record amounts of LNG that in turn pushed Asian spot LNG prices to historical highs.

This places China in a unique position to impact Europe next winter.

If China recovers relatively quickly from its COVID lockdown economic slump that saw its gross domestic product (GDP) growth slow to 3.3 percent last year, its demand for commodities will quickly pick up.

China is responsible for almost one-fifth of global oil consumption and surpassed Japan in 2021 as the world’s largest importer of LNG. The country also fills more than half of the world’s demand for copper, nickel, and zinc.

If the Chinese economy recovers rapidly, it could put commodity prices under intense upward pressure and keep inflation high in Europe and elsewhere in the West.

The Chinese Wild Card

But analysts also contend that there are many variables related to China that could determine what kind of ripple effects will be felt in Europe.

Alicia Garcia-Herrero, the chief economist for Asia-Pacific at the investment bank Natixis, says China has and will continue to buy energy resources and the country's economy is poised to grow at a far faster rate than in recent years, with Chinese government targets sitting above 5 percent of GDP for 2023.

But she adds that China has managed to secure its energy supplies through discounted deals with countries such as Russia, Malaysia, and Qatar that could lessen the impact that its resurgent energy appetite could have on Europe in 2023.

“There will no doubt be competition, but perhaps less than is being feared, especially for the impact on prices,” Garcia-Herrero told RFE/RL.

China is currently grappling with natural-gas shortages due to a mix of unusually cold temperatures and weak energy regulations and infrastructure, including provincial and municipal officials reducing gas subsidies that used to keep heating bills in check.

In response, Beijing has told local governments to supply heat, but hasn’t provided extra funds to pay for it. This has led to rationing, with many households receiving only enough for cooking needs.

With domestic interests in mind, Garcia-Herrero adds that Beijing will be cautious to avoid pushing up the price for gas, which could have less of an effect on Europe next winter than some are predicting. With COVID infections still spiking across the country, the full reopening of the Chinese economy is also not imminent.

This may give Brussels added time to insulate itself from potentially severe shocks next winter.

“In the long run, Europe may be in a much better position due to all the steps that the EU is taking now to get rid of its dependency on Russia and invest in renewables,” said the Economist Intelligence Unit's Demarais. “But from the short-term perspective, there is lots of concern about the wider impact on inflation and price.”