The War in Ukraine and Sanctions on Russia
In the wake of Putin’s invasion of Ukraine back on February 24, 2022, international organizations and governing bodies have called out Moscow’s leader for his aggression. This eventually resulted in severe sanctions being placed upon the Russians, aimed at weakening their economy and war efforts.
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The European Union, in accordance with partners such as the United States, placed numerous sanctions on Russia’s sectors, including finance, transport, and energy. They also prohibited the imports and exports of Russian steel.
Finland’s Decision to Follow EU Policy Affects China
As an EU member state, Finland is fully committed to the sanctions. In line with common policy, the European nation has also closed its airspace to any Russian aircraft.
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Although aligned with EU policy, this decision has significantly impacted Finland’s trade relationship with China.
Finland and China’s Relationship Before the War
Before the war and the sanctions that followed, Finland was in a unique position in that its flights and trade routes could easily pass through Russian airspace, which allowed it to build a lucrative trade network with China.
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Finland’s geographical location in Europe made it a hub for commerce and tourism, with multiple daily direct flights from Helsinki to Chinese cities.
A Good Relationship Before the War
Before the war, Finland was just a 9-hour flight from China as planes should fly straight through Russia. This made the country a natural choice for tourism and business travel since other flights from China to northern Europe would have taken much longer.
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However, the lack of visa-free access and sanctions put in place by Russia have made traveling and business increasingly harder for those entering or leaving the country.
Strain on the Relationship
“Finland opposes Russia’s actions in Ukraine, consistent with the EU’s common position, hence its avoidance of Russian airspace and decisions to prevent tourism from Russia,” Consul General Timo Kantola said (via South China Morning Post).
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This means closing off the railway connection from or to Russia, which has consequently cut the connection from China to Finland.
Russia Prohibits Finland From Crossing Its Airspace
With the onset of the war and the restrictions imposed on Russia, Putin and his officials decided to retaliate with several sanctions of their own, per The Regtech Times.
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In response to Finland, Russia decided to close its airspace for flights, meaning the Scandinavian nation could not long prosper from the unique position it once found itself in.
A Reduction in Flights
As a consequence of Russia closing its airspace, flights from Helsinki have been forced to fly out of Turkey instead, increasing travel times by up to three hours. This has negatively affected routes, including Helsinki to Zhengzhou, with some flights being cut altogether.
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The Helsinki-Shanghai route has seen close to a 10% drop in scheduled flights. Regtech Times reports, “Finland has seen a sharp decline in Chinese tourist arrivals, plummeting from over 40,000 per month in late 2019 to around 12,000 monthly in the past year,” showcasing how the sanctions have ultimately affected Finland’s tourism sector.
The End of Railway Connectivity
The sanctions have affected more than just flights. Before the war, numerous railway connections played a significant role in trade between China and Finland.
Source: Freepik
Trains, which previously transferred the 1,340-kilometer border between Finland and Russia, allowed for the movement of an unprecedented number of goods between the Scandinavian nation and China.
Finland Ends Train Routes
Finland decided to cancel all train routes to and from Russia, which ultimately severed this once-prosperous trade link.
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Before the conflict in Ukraine began, railway cargo was experiencing exponential growth, yet now it has been greatly hindered.
Trade Has Fallen Swiftly
Since the sanctions have been put in place, trade between China and Finland has fallen swiftly. In the first five months of this year, trade has fallen to $2.6 billion from last year’s $3.3 billion for the same period.
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This has caused the country to worry about its economic future while the rest of the EU seemingly focuses its efforts to promote life and prosperity elsewhere.
Various Issues Plague Finland
Because of the steep fall in trade, the project has been shelved indefinitely despite its ability to improve the railway systems that connect Eastern Europe to China.
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“I don’t think this project is moving, for various reasons,” Kantola said. “In Finland, there were hesitations about the idea from the beginning, related to expected high construction costs and low expected returns on investment.”
China Experiences Significant Drop in Trade
China’s trade with Finland has suffered greatly due to the various restrictions, sanctions, and changes that came about in the wake of the war.
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According to Chinese customs, trade with Finland dropped from around $3.9 billion during the first five months of 2023 to around 2.6 billion over the same timeframe this year.
Finland's Diminished Connectivity With China
Economists suggest this drop in revenue showcases the effects of Finland’s restricted connectivity with their former partner.
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Experts suggest the European nation’s increased logistical challenges have negatively affected the overall trade volume with China, which still ranks as Finland’s fifth largest exporter.
Construction Project Cancelled as a Result of Restrictions
The restricted travel between the two nations has also negatively impacted infrastructure projects. Finland and Estonia have been forced to shelve their plans for an 80-kilometer railway tunnel that would have connected Helsinki to Tallinn.
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The project initially garnered the attention of China, which may have contributed to keeping construction costs down. Nonetheless, the project was canceled after concerns were raised about a low return on investment and the high cost of construction.
Hope for China and Finland’s Once Prosperous Trade Relationship
In light of the challenges, China still has some interest in Finland, most prominently in the sale of electric vehicles. Several Chinese firms have already expressed interest in investing in several Finnish-based EV battery plants.
Source: Freepik
The recent decline in trade between China and Finland highlights the complexities that accompany changing geopolitical landscapes. In the end, the Scandinavians’ previous role as the bridge between China and Europe has been severed, and the nation will undoubtedly have to look for new economic ventures with other countries.
Finland Recovers, But Only Slightly
While Finland likely exited a recession months ago, the country, which is one of Europe’s worst-performing economies currently, is trying to rebound from its biggest losses as the War on Ukraine continues.
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“The end of a technical recession primarily means that Finland’s economy has bottomed out and a turnaround is happening now,” said Petri Malinen, an economist at Suomen Yrittajat, an organization representing small and medium-sized enterprises. “There is no reason to celebrate yet though.”
China’s New Trading Partner
While China is no longer a big source of trade for Finland, the country’s trade relationship with Russia has grown significantly. Beijing is already Moscow’s key supplier of cars, clothing, raw materials, and other products after Western countries imposed sanctions on Russia.
Source: fabrikasmif, Freepik
Trade between the two countries has reached $240 billion, which is up by 64% since 2021, according to official figures from China.
Big Trade Energy
China is the only one to benefit from this trade relationship. Russian imports from China reached $111 billion and Russian exports to China reached $129 billion.
Source: Freepik
As of 2023, China has become Russia’s top trade partner. But Russia isn’t China’s biggest trade partner. Five other countries, including the United States, trade more with China than Russia does.
Growing Concern
While Finland struggles to stay afloat, China has found itself in a sticky situation. The country has been accused of supporting Russia during the ongoing war by supplying weapons.
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China denies these accusations, but US Secretary of State Antony Blinken notes to the BBC that nearly 70% of the machine tools and 90% of microelectronics imported into Russia come from China.
China Trades Tech and More
In May, sanctions that targeted about 20 firms based in China and Hong Kong were announced. It said that one exported components for drones, while others helped Moscow bypass Western sanctions on other technologies.
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The Carnegie Endowment think tank analyzed Chinese customs data and found that about $300 million worth of dual-use items, which can be used for both commercial and military applications, are exported from Beijing to Russia each month.
Concern Over This
This growing concern had press in Italy asked Ukrainian President Volodymyr Zelensky if China was selling Russia weapons to use in the war. Zelensky said that President Xi Jinping told him that the country would not do so.
Source: President of Ukraine/Wikimedia Commons
President Biden, who stood next to Zelensky, chimed in, saying, “China is not supplying weapons but the ability to produce those weapons and the technology available to do it. So, it is, in fact, helping Russia,” (via CNN).
The US Sounds Alarmed
“Publicly, President Xi has tried to create the impression that he’s taking a back seat in this conflict to avoid sanctions and keep trade flowing. But the reality is that China’s fueling the largest armed conflict in Europe since World War II,” NATO Secretary Jens Stoltenberg said at The Wilson Center.
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“At the same time, it wants to maintain good relations with the West. Well, Beijing cannot have it both ways. At some point, and unless China changes course, allies need to impose a cost.”
The Devastating Effects
While the war has been catastrophic for Russia and Ukraine, the world is feeling the effects instigated over two years ago.
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The ongoing War on Ukraine has the US sounding alarm over China’s budding relationship with Russia, while Finland struggles to keep itself floating as trade woe plague the country.