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China's Russian Headache, Geopolitical and global financial outcomes on the road ahead

A large number of countries across the globe have come together to denounce Russia’s invasion of Ukraine, and not surprisingly. China, however, is arguably the most prominent to have remained tight-lipped and may well see an opportunity in collaborating with Russia against the west. Should it come to be, there may be some profound geopolitical and global financial outcomes on the road ahead...


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Just before Russia sent its troops into Ukraine to escalate animosities that had been festering for some time between the two nations, Russian President Vladimir Putin was hosted by Chinese President Xi Jinping where the two declared a ‘no limits’ partnership on what might be considered the auspicious opening day of the Winter Olympics.


The drive behind the partnership was meant to make allowances for backing each other over standoffs in Taiwan and Ukraine and to collaborate more readily against the West (as reported by Reuters). The two leaders agreed that they should work more closely on space and its exploration, climate change, artificial intelligence, and control of the internet.


Beijing has been supportive of Russia’s want that Ukraine should not be able to become part of NATO, and Putin has expressed his agreement that there should be no chance of

Taiwan gained its independence. In fact, Putin used the occasion to push through a deal with China over gas that is purported to be worth $117.5 billion, which will see a marked

increase in Russia’s exports to the Far East As reported in the Financial Times, on 18th

March US President Joe Biden held a lengthy call with the Chinese President in an attempt to reconcile any differences that exist between the two countries over the Ukrainian invasion.


That discussion was a failure. In that talk, Biden even went as far as to express his concerns about the consequences of the Chinese were to come to the aid of the Russians since their progress appears to have stalled in the face of the intensity of the Ukrainian defense.


In contrast, Jinping criticized the financially punitive measures the US and its cohorts

have imposed on Russia, which may well expand to other nations should they assist

Russia in any way. This too is in the wake of Russia’s request for weapons and drones

from Beijing in recent weeks.


Balloons

In 2021, Chinese-Russian trade ballooned by 35% to very nearly $147 billion (Reuters). What was a blossoming of trade between the two countries may well become a powerhouse in the geopolitical fallout of Russia’s invasion of Ukraine. If the West continues to try to isolate Russia, it is logical to assume that Putin will look to those friends who have stuck by him, but also possible new ones, and closer ties

with a global force such as China would be a boon for Russia.


As such, Russia has also started trading in renminbi, which allows it to trade outside of the SWIFT network (from which Russia has been rejected as part of the sanctions leveled against it).


Figure 1 shows the value of imports and exports between Russia and China in 2020. In

total, the value of exports From Russia to China was $40.4 billion. In contrast, the value

of exports from China to Russia was $11.8 billion. The nature of the exports for each country was contrasting too.





Generally speaking, exports that were provided to China came in the form of commodities and raw materials, for example, metals, minerals, and fuels. Those supplied to Russia were mainly technologically based such as electronics, machinery, and computers.


The most valuable export passing between the countries was from Russia to China and was crude oil/petroleum which was worth $27.3 billion (52.3% of the entirety of the value of the relationship in that year). In essence, then, Russia is quite dependent upon its economic relationship with the Chinese (perhaps especially so now), where the Chinese are not nearly so needy.


This is borne out by the fact that China tends to export 10 times as many mobile phones to the US as to Russia: so, where China’s exports to the Russians in phones were worth $3.18 billion in 2020, its exported phones to the US will have been worth somewhere in the region of $32 billion around the same period.


Geoeconomics

Having pointed out China’s independence above, it is noteworthy to understand that cash is not the whole story. It is widely acknowledged, at least historically, that Russia and China are more politically in sync.


However, China is also reliant on infrastructure-based projects. In particular, the Belt

and Road Initiative (and discussed by For ough in The Diplomat). The BRI involves the interaction of 140 countries and represents pathways by which goods are transported

and transferred across the world. It is set to be drastically impacted by the war in Ukraine.


As such, the landmass of Russia has served as a consistent route for Chinese access to the EU marketplace. Russia, Ukraine, Belarus, and Poland had designs on being part of an access route called the New Eurasian Land Bridge, a mainly rail-oriented land pathway vision.


The advent of Russia’s invasion of Ukraine has all but dashed these hopes and

that is a real problem for China.


A BRI cooperation platform called 17+1 (between China and 17 other Central/Eastern European nations) is a project overseen by the Chinese Ministry of Foreign Affairs de-

signed to promote business and investment relationships.


The initiative has already seen some significant setbacks due to the faltering of the dynamic between the US and the Chinese. The war instigated by Russia on Ukraine has

stymied the project still further what with the intense souring of relations between the West and Russia and also because of the decimation of the infrastructure inside Ukraine, the infrastructure necessary to the well-being of the initiative.


For China, which now will have to rely on old-fashioned maritime trade routes, headaches have been adding up. How these issues are going to influence China’s political and financial attitudes toward Russia is difficult to predict. Russia is facing some tough decisions and limited options in the wake of Putin’s campaign in Ukraine.


China’s business appears to be Russia’s only immediate option at least in the short

term. After Mastercard and Visa abandoned it, Russia is set to replace them with China’s


UnionPay. The situation appears to have evolved into one where an informed strategic analysis of what will take place in Europe cannot occur without an assessment of the significance of China’s role and East Asia.


What will invariably play out and have a profound bearing on the situation in the future is not just the economics of the war, or the geography of the war, but the geoeconomics and geopolitics of the war for each country and also each global region.


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