China’s position on the Russia-Ukraine war is becoming more difficult to maintain

The hot topic in corporate boardrooms last week wasn’t Russia, but China. China is Vladimir Putin’s lifeline. The Chinese can soak up Russia’s excess oil, gas, grain, and minerals, and receive a nifty discount for the favor. Both countries have been preparing for this moment, whether intentionally or unintentionally, for a decade. In retrospect, it’s clear China’s “Belt and Road” initiative helped build Putin’s escape hatch.

China’s hope now is to straddle the battle—take advantage of the discounted natural resource bounty from Russia while maintaining lucrative trade relationships with the U.S. and Europe. But as Russian attacks on Ukrainian civilians grow more obvious, frequent, and bloody, the China straddle becomes more difficult. Can global corporations, which acted so quickly to sever ties with Russia, simply ignore Russia’s prime enabler as the war moves ever further outside the lines of international acceptability? And even if companies choose to ignore China’s action, might the U.S. and Europe follow through with President Biden’s threat last week of “secondary sanctions”? Then there is the most-feared scenario: What if China uses the moment to invade Taiwan, which houses a significant portion of the West’s advanced semiconductor manufacturing—arguably even more important than oil?  (The prospect of a Taiwan invasion has become a significant concern of the Japanese public, which rests closest to the potential conflict, according to this recent poll.)

As one Fortune 500 CEO told me last week, if China decides to throw its lot in fully with Russia, it “has secured all the energy, minerals, and food it needs for a new ‘Greater East Asia Co-Prosperity Sphere,’ using its massive navy, and we move all the way back through a new Cold War to WWII imperial ambitions in the Pacific—but this time China and not Japan!”  

The hope, of course, is the same hope that ruled when China was admitted into the World Trade Organization in December 2001: that deep and enriching economic ties with the West will prevent such an imperial approach. And that may be the likeliest scenario. But any global company with significant business interests in China that isn’t stress-testing (or war gaming) these scenarios right now isn’t doing its job.

More news below. And check out Fortune writer Erin Prater’s coverage of the emerging economic Cold War between the U.S. and Russia here and here.

Alan Murray
@alansmurray
alan.murray@fortune.com

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This edition of CEO Daily was edited by David Meyer.