The Great Neighbour Returns Home

THE MOST TELLING remark that President Xi Jinping made during his trip to Moscow may have been, ‘Now there are changes that haven’t happened in 100 years. When we are together, we drive these changes.’

The inevitability of the end of the American century is a recurrent theme of Xi’s, with the sometimes stated, sometimes unstated implication that China will replace the United States as the global hegemon.

Russia and China believe they share an interest in accelerating the decline of US-led Western power. Both accuse the West of responding with policies of ‘containment, encirclement and suppression’.

Xi’s state visit saw repeated assertions of his deepening friendship with his host, Russia’s President Vladimir Putin. At one point, he called China and Russia ‘great neighbouring powers and comprehensive strategic partners’.

Undoubtedly, the visit strengthened formal ties between the two countries. Documents were signed on further economic cooperation and deepening the bilateral partnership.

Yet a relationship based on shared hostility to the West may be more a marriage of convenience than a deep friendship, and there are signs that the strengthening of bilateral ties is occurring in a way that makes Beijing the main beneficiary.

That is most evident in the economic relationship. China can sell Russia the goods it needs that the West has sanctioned, and as the West shuns Russian energy, China can buy it on the cheap.

Xi’s holding off on building the Power of Siberia 2 gas pipeline connecting the two countries, a priority for Putin, was a subtle sign of which party holds the leverage.

Any Western hopes that Xi might use his trip to broker peace in Ukraine, however slight to begin with, quickly evaporated. By the end, the message was that the West was prolonging the war by refusing to accept China’s peace plan.

Xi’s presentation of Beijing as a pragmatic peacemaker, the honest broker of world affairs, in contrast to the Washington warmonger, the flailing ideologue, will resonate with much of its intended audience, the Global South.

Yet, after Xi flew out of Moscow, leaving behind an invitation to Putin to revisit Beijing later this year, a new wave of Russian drone attacks hit Kyiv

Mr Xi Goes To Moscow

THE EMPEROR DOES not usually travel to visit the vassal.

However, President Xi Jinping will go to Moscow to meet his Russian counterpart and friend Vladimir Putin on Monday and Tuesday.

It will be his first visit to Russia since Putin’s invasion of Ukraine shortly after the two leaders declared their partnership without limits when they met during the Beijing Winter Olympics in February 2022.

Yet the war has made it transparent that there are limits to the relationship, and they are becoming complex.

The visit will be widely seen as a show of support by Xi for Putin, a message that China stands by its friends aimed at the Global South as much as at the West.

However, the visit also promotes hopes that Xi can develop an exit strategy with Putin to end the fighting, although, to this Bystander, those hopes are not well-founded.

China has put forward a 12-point peace plan, largely dismissed in the West as providing a ceasefire during which Moscow can regroup and rearm. The proposal does not require Russian troops to leave occupied territory. It also requires the West to withdraw, leading Moscow and Kyiv to negotiate an end to the conflict, presumably mediated by Beijing.

Xi is expected to talk to Ukrainian President Volodymyr Zelensky after he has met Putin. That may be the start of some shuttle diplomacy, but how much scope Xi has to pursue it is uncertain.

His biggest constraint is that any end to the war in Ukraine acceptable to the West will also require a new security architecture in Europe. While it would suit Xi to shape that to China’s advantage, it would be a monumental task that appears unachievable given the deteriorating state of China-US relations.

Putin’s surprise visit to the occupied Ukrainian port of Mariupol on Saturday suggests the Russian leader has no intention of backing down. The International Criminal Court issuing a warrant for his arrest gives him further incentive not to do so.

At this point, there is little basis for a negotiated end to the war. A protracted conflict seems inevitable, although the length of the kinetic phase of the war may be clearer once the spring surges are done. Yet they do not promise a decisive breakthrough for either side.

Meanwhile, the geopolitical sakes for Xi remain high. For as long as Washington cannot let Moscow win the war, China cannot afford for Moscow to lose it. That may be the one thing the imperial visit underlines.

Ukraine War Creates Growing Complexity For China

THE 12-POINT PEACE plan for Ukraine that China released last week sits as uncomfortably on the fence as possible.

Largely a repackaging of earlier ideas and proposals, it straddles giving support to Moscow while distancing Beijing from a conflict that has become increasingly diplomatically awkward for China.

Top diplomat Wang Yi went to Moscow to meet Russian President Vladimir Putin and Foreign Minister Sergey Lavrov two days before the first anniversary of Russia’s invasion of Ukraine to underscore the strength of a relationship that Putin and Xi Jinping famously declared shortly before the attack was without limits.

However, the longer Russia’s failure to win militarily in Ukraine drags on, the more complex the limits to the China-Russia relationship become, though, similarly, the lower China-US relations sag, the more certain Beijing comes that confrontation with Washington is inevitable, so China will not turn its back on its ally Russia.

Wang’s statement while in Moscow that the two countries support ‘multipolarity and democratisation of international relations’ was little more than diplomatic speak for a shared objective of opposing US-led Western management of global affairs.

Beijing’s peace plan for Ukraine similarly calls for the West to honour a ceasefire that would relieve Moscow of the current stalemate in the fighting, allowing it to regroup and rearm, lift sanctions on Russia, and back out of the conflict, leaving the two parties, Moscow and Kyiv, to resolve it with Beijing mediating a reconciliation of the irreconcilable positions of ‘respecting the legitimate security concerns’ and the ‘sovereignty and territorial integrity’ of both.

Both its conditions and internal contradictions mean China’s plan has little credibility and less chance of progress, leaving Beijing having to weigh the risks of increasing its support for Beijing, including active military support, against the damage that would do to its broader interests with Washington leaning heavily on it not to provide Moscow with lethal weapons.

That is a tactical, not strategic, calculation for Beijing. It will instinctively empathise with Moscow feeling aggrieved by NATO’s eastward growth in Europe, and see parallels in the Indo-Pacific. China will also be storing up favours to be called in at the UN and within the G20 and other multilateral institutions if the reunification of Taiwan becomes less peaceful.

China Is Becoming The Big Brother In Its Friendship With Russia

PRESIDENT XI JINPING and his Russian counterpart, Vladimir Putin, have had their much-anticipated tete-a-tete on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Samarkand.

Like everyone else not in the room, this Bystander is scrambling for crumbs from the conversation. There is precious little of substance in the public reports of the meeting.

According to Xinhua, Xi told Putin that China is ready to work with Russia in extending strong support to each other on issues concerning their respective core interests. Other boilerplate text is available, although none that mentions Ukraine.

Unexpectedly Putin, before the meeting, acknowledged that China had (unspecified) questions and concerns over Ukraine but then picked up the pre-prepared script by thanking China for its ‘balanced position’ — a phrase we heard earlier in the week from the Kremlin — and saying that the US attempts to create a unipolar world would fail.

Both the Chinese and Russian readouts of the meeting mentioned Putin’s expression of support for the ‘One-China’ principle — the legerdemain Beijing and Washington devised for their relationship over Taiwan that Beijing now seems to be seeking to elevate into a universal principle.

However, Putin’s need to mention it points to how the balance of power in the Russia-China ‘no limits’ friendship is titling in Beijing’s favour. That is not to say that China is not offering Russia assistance, but it is becoming the ‘Big Brother’ and so gets first pick in setting the terms.

Those involve increasing flows of cut-price Russian energy eastward, but not so much by way of Chinese technology or investment going in the opposite direction, and certainly not any visible flows of military equipment or supplies.

If Putin had harboured any expectations of receiving an endorsement from Xi of his invasion of Ukraine — and the way the Kremlin has been rowing back from some fulsome comments about Chinese assistance suggests he did not — then meeting amid the disparate scrum of leaders attending the SCO summit gave Xi a perfect excuse not to offer one.

Meanwhile, Xi could get on with the task of deepening China’s infrastructure and energy ties to Central Asia, thus further chipping away at Russia’s historic sway in the region.

Russia’s Fulsomeness Discomforts Its Firm Friend China

MOSCOW HAS BEEN far more forthcoming about the help Russia is receiving from China than Beijing, and probably than Beijing would like.

News that President Xi Jinping would meet his Russian counterpart, Vladimir Putin, during the first day of the Shanghai Cooperation Organisation (SCO) summit in Samarkand on September 15-16, first came from the Russian side, as did statements that the two would discuss Russia’s war in Ukraine and Taiwan. Beijing has yet to confirm that the two men will meet one-to-one.

Beijing has tried to walk a fine line in public between fulfilling its commitments to its ‘no limits’ friendship with Moscow, declared when Putin visited Xi during February’s Beijing Winter Olympics, and opening itself to Western sanctions for aiding Russia’s Ukraine war.

In that light, the official Russian readout of the meeting last week between Russian lawmakers and Li Zhanshu, chairman of the National People’s Congress Standing Committee and the third most senior Party official (seen in the photo above with Putin), would have been received uncomfortably in Beijing.

This quoted Li as saying:

China understands and supports Russia on issues that represent its vital interests, in particular on the situation in Ukraine…We fully understand the necessity of all the measures taken by Russia aimed at protecting its key interests, we are providing our assistance.

Chinese reports did not mention Ukraine.

Russia’s Tass news agency also quoted Li as telling Vyacheslav Volodin, his counterpart in the Russian Duma (parliament), during a separate meeting:

In the context of US sanctions imposed against you and against us, some of our joint areas of cooperation are indeed gradually becoming more sensitive, but I am convinced that we should not halt our cooperation just because we are afraid of sanctions.

This week, Moscow appears to have been trying hard to tone down its fulsomeness about the bilateral relationship. Kremlin aide Yuri Ushakov said at a briefing in Moscow merely that Moscow values China’s ‘balanced approach’ to the Ukraine conflict.

This Bystander suspects that such carefully balanced rhetoric will be challenging to sustain in Samarkand as the two leaders put forth their alternative world order to challenge the United States.

Xi and Putin To Meet In Samarkand

ACCORDING TO RUSSIAN reports, President Xi Jinping and his Russian counterpart, Vladimir Putin, will meet for discussions during the Shanghai Cooperation Organization (SCO) summit in Samarkand next week.

It will be their first in-person meeting since Putin attended the Beijing Winter Olympics in January ahead of his invasion of Ukraine.

The summit will also be the SCO’s first in-person get-together since before the pandemic. Russia’s ambassador to Beijing, Andrey Denisov, told the TASS news agency that:

I do not want to say that online summits are not full-fledged, but still, direct communication between leaders is a different quality of discussion. One way or another, there will be plenary sessions and various kinds of group meetings, and we are planning a serious, full-fledged meeting of our leaders with a detailed agenda, which we are now, in fact, working on with our Chinese partners.

By lighting on the SCO for his first official trip outside China in more than two years, Xi can avoid making it a direct visit to Russia while still making Putin the first important foreign leader he meets. He will also be able to signal the shifting geopolitical balances between East and West and offer a counterpoint in the SCO to the collation of like-minded democracies that the United States is orchestrating, with more success than Beijing might have expected.

Over the next ten days, we can expect a barrage of coordinated commentary from Chinese and Russian state media about the growing need for Moscow and Beijing to cooperate to safeguard and reform the international order against Washington’s efforts to reshape it to preserve its hegemony.

We can also expect a sub-narrative intended for domestic Chinese consumption on the ineffectiveness of Western economic sanctions. Li Zhanshu, chairman of the Standing Committee of the National People’s Congress and China’s third most senior leader, set the tone when he spoke at the Seventh Eastern Economic Forum in Vladivostok on Wednesday. Li claimed that the harsh sanctions imposed by the United States and other Western countries had not defeated Russia’s economy and praised its ‘stability and resilence’, which he attributed to Putin’s leadership.

China And Russia Fly Too Close For The Quad’s Comfort

CHINESE AND RUSSIAN nuclear bombers conducting a joint exercise over the Sea of Japan while in Tokyo the leaders of Japan, the United States, India and Australia are discussing regional security sends a particular message of togetherness on the part of Beijing and Moscow.

The aircraft (seen above in a Defence Ministry of Japan photograph) did not breach territorial airspace. However, Japan’s defence minister, Nobuo Kishi said it was the fourth time since November that long-distance joint Russian and Chinese air force flights have passed near Japan. Such flights date back to at least 2019

Beijing has been ambivalent about Russia’s invasion of Ukraine, despite the effusiveness of Presidents Xi Jinping and Vladimir Putin when they met during the Beijing Winter Olympics in February over their relationship ‘without limits’. It adds another headwind to those buffeting China that Xi could do without.

Nonetheless, the invasion has connected the security situations at Asia’s eastern and western extremes. The meeting of the four leaders in Tokyo under the auspice of the Quadrilateral Security Dialogue (‘the Quad’) was plain on that point. However, they were as explicit in saying the Quad is not an embryonic ‘Asian NATO’ as Beijing has been about claiming its relationship with Moscow is not an alliance.

Neither assertion cuts much ice with the other. Nor is there much getting around that an alternative international governance model for the region just sounds like another way of describing challenging China’s regional expansion.

The Quad has no formal institutions (unlike NATO). It has conducted joint naval exercises, but it is also looking to advance its soft power by promoting intra-regional cooperation in areas like ‘green’ transport, climate change and cybersecurity.

This modular approach to regional security aligns closely with the Biden administration’s preference for building coalitions of countries and institutions around specific mutual needs — and defining security extremely broadly — rather than traditional security alliances and trade agreements. The newly announced Indo-Pacific Economic Framework fits that mould, too.

China-Russia Trade Slows In March

THIS BYSTANDER ALWAYS cautions against drawing too-firm conclusions from one month’s economic data. Yet, preliminary March trade data released by China’s General Administration of Customs suggests that Chinese companies have been cautious about trading with Russia since the invasion of Ukraine.

In March, China’s exports to Russia at $3.8 billion fell 7.7% year-on-year, their lowest level since May 2020, when global trade was tanked by Covid-19.

At $7.8 billion, imports from Russia rose 26.4% year-on-year, but rising commodity prices would have inflated the value of the underlying volumes. Even then, the dollar figure was below the record $8.3 billion recorded last December.

China mainly buys energy and agricultural commodities from Russia and sells it machinery, vehicles and electronic equipment. Product category breakdowns are not available with the preliminary data. We shall have to wait until later in the month for that detail.

In February, at their meeting during the Beijing Winter Olympics, President Xi Jinping and his Russian counterpart Vladimir Putin agreed to boost annual bilateral trade to $250 billion. In 2021, it was worth $147 billion.

Xi has been put in something of a quandary by his friend’s war in Ukraine, although China’s self-interest was always going to determine its economic support, overt or otherwise.

This and concern about possible risks of Western sanctions may have made Chinese firms proceed warily following the invasion of Ukraine. However, other factors could have contributed to March’s bilateral trade slowdown, most notably the Omicron surge disrupting supply chains.

April’s data may bring more clarity.

The Longer The Ukraine Crisis, The More Of A Non-Player China Becomes

PRESIDENT XI JINPING can be taken at face value when he told his US counterpart Joe Biden in Friday’s two-hour video call that China does not want war in Ukraine.

His friend, Russia’s President Vladimir Putin, giving the West a quick and bloody nose in Ukraine would have been one thing. Xi could have cheered on from the side but be otherwise uninvolved. His view of the West’s secular decline and democracies’ failings would have been further confirmed.

However, events have turned out badly for China, and become worse the longer they drag on. The West’s response to Russia’s invasion has been forceful and unified. An anticipated lightening military victory has become a siege war of attrition. Soaring energy, metals and food prices and renewed disruption to supply chains have stiffened the economic headwinds buffeting China.

Most of all, China is caught uncomfortably in the middle diplomatically. Xi cannot (and will not) abandon his friend, yet, nor can he side with the West over the conflict.

China has had to perform diplomatic gymnastics to preserve its principles of indivisible sovereignty and non-interference in the internal affairs of others, both violated by Russia’s invasion. Calls for resolving the conflict by diplomatic means sound rote, and Beijing’s lack of experience and possibly capacity to broker peace have been exposed.

Economically, future trade with Europe and the United States, already more than five times larger than that with Russia, is in the balance. Maintaining economic relations with the West while opposing US ‘hegemony’ has been a tightrope Beijing has chosen to walk. Yet, as Biden made clear to Xi in their call, getting knocked off by the imposition of yet more Western economic sanctions for aiding Moscow is a growing risk. China will be particularly reticent to help Moscow circumvent financial sanctions, as those are where it and Chinese firms will be most vulnerable.

Beijing also needs Russia’s implicit security guarantees in Central Asia for the Belt and Road. These will be coloured by the outcome of Ukraine, which limits China’s opportunities now to exploit Russian weakness to secure cheap energy and commodities.

China has never joined Russia in any military intervention abroad and is unlikely to start now, even if it supplies materials for the Russian army’s use. War in Ukraine is not a core interest, and its leadership displays caution on matters not related to its core interests. In such circumstances, it prioritises creating a stable international environment conducive to China’s economic development.

It does not look as if Beijing knows how to do that, beyond repeating calls for a negotiated settlement. A telltale sign was the readouts of the Xi-Biden call: whereas the United States portrayed Ukraine as the focus of the call, China’s portrayed US-China relations as the main topic.

Yet taking a formal lead in mediating a peace in Ukraine would underline how Beijing’s relationship with Moscow was more one of convenience and a shared adversary rather than the ‘no limits’ alliance portrayed. It could also be taken domestically as yielding to Western pressure.

Further, failure of such talks would be a diplomatic embarrassment that could rebound internally with uncertain effects, given the imminence of the Party Congress in the autumn.

US Reminds China It Is Still Taking Care Of Business

JUST BEFORE FORMER US President Donald Trump left office, he signed into law the Holding Foreign Companies Accountable Act (HFCAA), which allows the delisting of any foreign — for which read Chinese — company publicly traded in the United States that does not let US regulators inspect its finances to the same extent required of US companies.

US-listed Chinese companies must disclose their non-US operations’ audits, which Chinese regulations prohibit auditors from sharing.

The law also targets alleged Chinese government control of such companies and was part of Trump’s broader strategy to limit Chinese companies’ access to US capital and technology.

On March 8, HFCAA was used for the first time. The US Securities and Exchange Commission provisionally listed five Chinese companies that it said were not in compliance — biotech firms BeiGene and Zai Lab, Yum China, which runs KFC and Pizza Hut fast food outlets, ACM Research, a semiconductor process equipment manufacturer, and pharma firm HutchMed China.

As the accounting scandal involving Luckin Coffee in 2020 showed, there are legitimate investor reasons for HFCAA, and its wheels turn exceedingly slowly. Delisting will not necessarily follow. The firms have opportunities to come into compliance. Even if they do not, 2024 is the earliest delisting would occur.

So the timing may be coincidental, but this Bystander doubts it.

Concern about Russia using China to end-run Western sanctions over Ukraine is growing within the Biden administration. The SEC’s announcement follows warnings by US Commerce Secretary Gina Raimondo that the US could ‘essentially shut down’ any Chinese companies that defy US sanctions by continuing to supply chips and other advanced technology to Russia.

Semiconductor Manufacturing International Corp, a chipmaker Raimondo mentioned, could become a new Huawei.

Delisting the five companies named would not necessarily impact US efforts to isolate Russia technologically. and certainly not in time to disrupt wartime supply lines.

However, the threat adds to the signals to China and its companies to tread carefully when it comes to US sanctions (and Chinese firms will be careful not to put their exports to the US and EU at risk by overtly violating them), or exploiting the situation created by the war in Ukraine.

This week, Bloomberg reported that some of China’s state-owned energy and commodities giants, including China National Petroleum Corp, China Petrochemical Corp, Aluminum Corp of China and China Minmetals Corp, are considering the opportunities for investment in Russian counterparts such as Gazprom and Rusal.

As well as providing economic support to a strategic partner, any deals would bolster Beijing’s efforts to improve its energy and food security. China is already the leading market for Russia’s exports, taking 13.5% of the total. That will only grow as Western sanctions that China has no intention of honouring bite on Russia.

Trade deals announced shortly before the invasion of Ukraine when Russian President Vladimir Putin was in China for the Beijing Winter Olympics last month now seem even more like a prelude to the future.

That future will be about trade deals in which Russian commodities fulfil China’s needs for energy and food, and China meets Russia’s needs for technology and advanced manufactures containing it like aircraft.

Update: Reuters news agency reports that discussions between Washington and Beijing on resolving the audit issue are progressing ‘relatively smoothly‘, although it sounds as if there is still a fair way to go to bridge the gap between the two sides.

Footnote: Around 250 Chinese companies listed on US exchanges could fall foul of HFCAA, according to another little-known Trump-era agency, the US-China Economic and Security Review Commission, which advises on the US national security implications of China’s bilateral economic activities. A steady addition of small batches to the SEC’s provisional list would accelerate the relocation of listings from the United States to Hong Kong.