Third-best option: ESCU’s new report on China’s role in Russian maintained access to critical industrial equipment, 12 August 2024

...Currently, the production capacity of Russia’s military-industrial complex is operating at a record high of 84%. With 63-65% of all Russian capital equipment being worn out, new machine tools, in particular those with computer numerical control, are becoming one of the most critical technologies that the Russian war machine seeks to obtain at any cost. 

During the first year of the full-scale invasion, the issue of Russian access to foreign CNC machines remained out of the sanctions coalition's focus, which allowed the aggressor state to increase its imports significantly. At the same time, due to the lack of domestic production, Russia's dependence on external supplies of industrial equipment and relevant components was and still is at 70-90%. Moreover, the vast majority of machine tools delivered to Russia end up in the hands of its military producers and are used to maintain existing facilities or build new production shops. 

Since the end of 2023, members of the sanctions coalition have made great efforts to block Russia's access to Western CNC equipment. Under the pressure of the imposed sanctions, constant losses of military equipment at the frontline, and a shortage of production capacity, the Russian Federation is finding new ways to circumvent the restrictions and maintain or even increase imports of machine tools.  

In 2023 and 2024, China became the leading supplier of industrial equipment to the Russian Federation, accounting for 80-90% of the machine tools imported by the aggressor state. Such Sino-Russian trade cooperation is based on three workarounds, which still depend on Western input: 

1. Supply of machine tools manufactured in the countries of the sanctions coalition to Russia through China as a re-export hub
2. Exports to Russia of machines manufactured at the factories of Western companies in China 
3. Russian imports of Chinese machine tools, the production of which depends on Western components, technologies and expertise 

The states of the sanctions coalition, in particular those with the most significant extraterritorial influence, need to create new tools and improve existing ones to: 

• Encourage Western manufacturers of CNC machines and related components to closely monitor the export of their products to China and prevent their equipment from being supplied not only directly to Russia but also to irresponsible Chinese manufacturers, taking all necessary measures, including controlling the activities of their subsidiaries in the PRC.  
• Discourage Chinese manufacturers of CNC technology from cooperating with the Russian market in any available form, directly or indirectly, as well as to conduct thorough due diligence on their part. 

Achieving these two goals is only possible with the large-scale use of leverage underlying economic statecraft, namely the dependence of both Western and Chinese manufacturers on constant access to foreign expertise, technology, investment, markets, etc...