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Slowly but surely Russia is becoming a vassal state of China

WorldSlowly but surely Russia is becoming a vassal state of China

The ‘no limits relationship’ does have limits. Beijing has not provided material support for Putin’s war effort, nor has it helped his government and banks evade the tough sanctions.

It’s now a year since President Vladimir Putin sat opposite Chinese President Xi Jinping around that huge mahogany table, festooned with flowers, and declared their “partnership without limits”. In the joint statement after the meeting, Russia voiced support for China’s stance that Taiwan is an inalienable part of China, and in turn China supported Russia in calling for an end to NATO expansion into its neighbours.
Purely by chance, of course, less than three weeks after the two leaders embraced, Russian tanks rolled across the border into Ukraine, starting an invasion that would devastate the country and cause a huge humanitarian crisis. The world noticed that China did not shrink from that declaration of love with Russia. Instead, Beijing claimed impartiality in the conflict and suspiciously insisted that it had had no advanced warning of the invasion. While refusing to condemn Moscow’s actions, China simply parroted Moscow’s excuse, blaming NATO for provoking the conflict.
So, twelve months on, how’s the unlimited partnership going?
If you listen to Russia’s Foreign Minister Sergey Lavrov it’s great, and relations between Russia and China “know no bounds”. In a TV interview last week, Lavrov insisted that relations are of a higher quality than traditional military alliances and are the best in the history of both the Soviet Union and the People’s Republic of China, and the Russian Federation. But as last year unfolded, the true nature of the Russia-China relationship became more apparent. What emerged was nothing like an axis of autocrats, but a lopsided partnership in which the terms are defined by its alpha member, Xi Jinping, primarily to serve China’s interests.
In a classic case of the ancient Chinese proverb “my enemy’s enemy is my friend”, Xi and Vladimir have forged a close personal relationship, each seeing Washington as the main impediment to the achievement of their international ambitions. Beijing’s diplomatic backing of Moscow’s position on Ukraine, as well as Russia’s role in the world as a major player, has been of particular value to Vladimir Putin. So has China’s more concrete assistance. As Russia’s financial and business ties to the West crumble under the weight of sanctions, trade with China has replaced some of its lost income. While Russia’s trade with the US has plunged by more than half during the course of 2022, with US imports from Russia massively dropping from $1.9 billion in January to $0.6 billion in November, trade between China and Russia surged by nearly a third to $172 billion, according to data from China’s General Administration of Customs.
Much of this surge is, of course, due to hydrocarbons which reflects not only high prices but also growing volumes of oil, LNG, and coal. Pipeline gas exports to China will increase dramatically with the planned expansion of Power of Siberia. When fully completed, this new 2,500 mile pipeline will have strong implications for energy security in both China and Russia, with Moscow relying on much of its state income from China. Moscow’s further dependency on Beijing is illustrated by the departure of western car brands from Russia because of sanctions. Of 14 car brands remaining in the country, only 3 are Russian, while 11 are Chinese.

But Xi is playing his cards carefully in the interests of China. It’s now clear that the “no limits relationship” does in fact have limits. Beijing has not provided material support for Putin’s war effort, nor has it helped his government and banks evade the tough sanctions after the Russian invasion of Ukraine. Xi Jinping appears to have heeded US President Joe Biden’s warning that China would “face consequences” if Beijing aided Russia. The consequential US sanctions on China, which is still heavily dependent on US and European trade, technology and investment, would play havoc with China’s economy. Xi is able to pursue this course of action simply because the relationship between him and Putin is not equal. The Ukraine war has exposed Russia as a declining power, and its isolation from the West has left Putin with little choice but to turn to Beijing. And Xi is taking advantage.
Nowhere is this more evident than in Russia’s growing dependence on the Chinese yuan.
One of Moscow’s biggest current problems is that of managing its foreign trade transactions. Because of the West’s early action after the invasion to cut off Russia from the Society for Worldwide Interbank Financial Telecommunications, otherwise known as SWIFT—a key component of the global payments system—Russia is being forced to look for new ways to pay for imports and to get paid for its exports. Even Russian companies that have not been directly sanctioned are still running into major difficulties when trying to settle their accounts with foreign partners. Their bank accounts in dollars and euros have been blocked, payments sent in foreign currencies take months to be processed, if at all, and even banks in “friendly countries” are refusing to carry out transactions for fear of being sanctioned by the US. In the third quarter of last year, the proportion of foreign currency in the Russian banking system fell to an all-time low of just 15%. In just nine months, the share of dollar transactions declined from 52% to 34%, and those in euros from 35% to 19%. These have been replaced by rouble payments, which have increased from 12% to 33% and, notably, by payments in the Chinese yuan, increasing from almost zero to 14%. The yuan’s share in stock market trading has also skyrocketed from 3% to 33%. If you want more evidence of the growing influence of the yuan, Russia’s Finance Ministry has revised the structure of the National Wealth Fund currency component, doubling its yuan share to 60%.
The de-dollarisation of the Russian economy, of which President Putin is so proud, is turning out to be a “yuanisation” of the economy. In fact, much to Beijing’s delight, Russia’s growing dependence on the yuan is helping the Chinese authorities to make it an international reserve currency.
Currency aside, China will only help Russia to the extent that it doesn’t attract sanctions and imperil its own ability to sell goods to rich countries in North America and Europe. But although Xi Jinping shares Putin’s hostility to the West and NATO, it doesn’t mean that he will be offering unalloyed charity. China’s $18 trillion economy is now 10 times mightier than Russia’s and Vladimir Putin should remember that Xi’s overriding concern is China’s prosperity and security, not saving Russia. Even more worrying for Moscow, Beijing will set out a high price for its support as, in deciding any trading relationship, Beijing has a massive leverage over Moscow. For example, Huawei Technologies is building Russia’s 5G network, complete with Beijing’s covert monitoring system, at the time that Russia depends on China’s cooperation on everything from aircraft parts to currency swaps.
In a stunning reverse of the Cold War pattern, Russia is indisputably the junior partner to a more powerful China, a country obsessed by correcting historical humiliations and retaining its position of global leadership. And here there is a certain irony as China turns the tables on Russia. When Chairman Mao Zedong visited Soviet dictator Joseph Stalin in the winter of 1949, he was very much the junior supplicant. Stalin packed him off to wait for weeks in his snow-bound No 2 dacha, 27 kilometres outside Moscow, and when the two Communist leaders did get to business, Stalin bullied his way to a very favourable deal that put Mao on the hook to buy Russian arms and heavy machinery with a loan on which Beijing would have to pay substantial interest. Now it’s the Russian President who goes to Beijing pleading for help. Slowly but surely, Russia is becoming a vassal state of China.

John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998. He is currently Visiting Fellow at the University of Plymouth.

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