Xi and Putin’s love-in is an ominous sign for the West
China has cushioned the Russian economy from the impact of sanctions as Moscow supplies it with oil
As fully blown war in Ukraine enters its third summer, the Russian and Chinese presidents have used their 43rd official meeting in just 12 years to demonstrate mutual admiration and support.
Xi Jinping and Vladimir Putin have pledged to deepen their “strategic partnership”, during a two-day summit in Beijing, emphasising commercial, diplomatic and military cooperation.
China will work with Russia to “uphold fairness and justice in the world,” declared Xi in the Great Hall of the People. “This partnership is exemplary for how relationships between neighbouring states should be,” Putin replied. In a joint statement, they pledged to “deepen our comprehensive partnership, entering a new era”. And they made sure to crank up the geopolitical tension, expressing “serious concern” about the attempts of the US to “disrupt the strategic security balance in this region”.
Russia and China have traditionally treated each other with suspicion and loathing. Since the 17th century, when the Qing dynasty attacked Russian settlers in Manchuria, the consolidation of what is now Russia’s far east, establishing the vast 2,600mile land border, has been characterised by conflict.
As recently as the Soviet era, the two countries almost went to war again after the 1961 “Sino-Soviet” split as they fought to control the Communist world. But all that changed when the USSR broke up in the early 1990s and Russia and China, adopting their own forms of capitalism, began exploiting their natural economic synergy – with one providing much of the energy and other commodities that helped the other become a manufacturing superpower. Bilateral trade has since surged, especially over the past two years, as China has cushioned the Russian economy from the impact of Western sanctions. Combined imports and exports amounted to $240bn (£190bn) last year – up threefold since 2008 and 26pc higher than 2022, as war in Ukraine has raged on.
The world’s largest oil importer, China now gets a third of its crude from its near neighbour, with Russia overtaking Saudi Arabia last year as China’s biggest supplier. Russia has, in return, bought ever more Chinese cars and smartphones as European and US brands withdraw. The value of goods shipments from China to Russia has rocketed by two thirds since the West imposed sanctions on Moscow.
This column often highlights the threat that geopolitical dangers could derail the global economy in a way that would disproportionately impact the West. Escalating hostilities between Israel and Palestine could yet see Iran block the Strait of Hormuz, the gateway to the Gulf through which tankers carry 25m barrels of oil a day to global markets – a quarter of global supply. Blocking that energy pinch-point would see oil prices and inflation balloon, destroying plans to reboot Western economic confidence by lowering interest rates.
Another big risk is our growing dependence on rare earth minerals as we move to net zero. This is vital not only in the manufacture of electric vehicle batteries, wind turbine hubs and solar panels but also consumer electronics. China boasts over a third of known reserves of these crucial 17 elements – 10 times more than Australia and 20 times the US. Having invested heavily, China now controls no less than 70pc of rare earth production worldwide and a staggering 85pc of total global capacity to process rare earth into usable form.
And China’s intensifying interest in Taiwan is also about more than misplaced nationalism, given that Taiwan produces more than half of all semiconductors used worldwide, a $600bn global market expected to triple over the next five years given the importance of chips in AI and other technologies. But the strengthening Russia-China relationship is also right up there when it comes to geopolitical threats we face. Russia is importing critical military inputs needed to keep its war effort going. Moscow is also now sharing advanced military and aerospace technology with Beijing. All of this has huge implications.
The widespread breaking of sanctions is also undermining Western hegemony. Russia is re-exporting oil via India, while conducting untold financial transactions via UAE – both supposed Western allies. Turkey and Kazakhstan are also getting closer to China, both making hay as hubs for Russia’s sanction-busting parallel imports – goods shipped without permission through third countries.
A report by the European Bank for Reconstruction and Development (EBRD) revealed a huge shift in trade patterns from Western Europe to former Soviet republics . The EU seems to be busting its own sanctions.
And then there’s the huge rise in the use of the Chinese currency, rather than the dollar, in Sino-Russian trade. In 2016, just a tenth of Chinese exports to Russia were in renminbi. Now it’s two thirds, says the EBRD, with the RMB increasing its share in Russia’s overall trade almost tenfold, from under 4pc in 2021 to 33pc now.
When a major energy exporter and the world’s biggest manufacturer stop trading in dollars, that seriously undermines America’s “reserve currency status” and all the economic power that goes with it.
It’s easy to scoff at this summit. Of course, Russia is the more needy partner. Trade with the US and EU is much more valuable to China. Russia isn’t even in China’s top 10 trading partners. Yet a deepening Sino-Russian relationship, the heart of an emerging and commercially powerful antiWestern alliance, is among the most important developments of our time.
‘Bank report reveals huge shift in trade from Europe: the EU seems to be busting its own sanctions’