Thoughts around the Xi - Putin summit

Putin sent a clear signal to the West this week, with his first foreign trip after the inauguration being to Beijing to visit President Xi. Putin was clearly trying to signal that China stands firmly behind Russia. This was significant as it comes after the cabinet reshuffle in Russia last week, the most significant move of which was the replacement of Defence minister Shoigu with an economist, Belousov. The messaging there from Putin was that he now views the outcome of the war in Ukraine as being determined by which side can mobilise the most resources in a longer run battle of economic endurance. Belousov’s appointment is an attempt by Putin to signal that it is getting its domestic house in order, and moving over to a more efficiently managed war economy. The trip to Beijing is an attempt to show that Putin is lining up the external component, with economic backing from China.

Putin has a point in thinking that the war in Ukraine will indeed be determined by which side can out resource/spend the other.

At face value one might think that Russia has little chance given its economy has a GDP of $1.8 trillion, set against the combined Western GDP of $40 trillion plus. Add in China’s $17 trillion powerhouse economy and the balance of economies begins to look a little different.

Unfortunately the West appears not to have realised that the war in Ukraine is now all about the economy and resources. The data shows that Ukraine is being under-financed and resourced in the war. Annual Western support to Ukraine is running around $100 billlion a year, but that is only for it to hold the line, not push Russia back - it would then likely require support closer to the $150 billion a year mark. And unfortunately with US support delayed by Congress, Western support for Ukraine has ebbed and flowed - peaking around $8.5 billion in the first half of 2023 to coincide with the much touted Ukrainian counter offensive, but then dropped back to just $3.7 billion a month in the period October 2023 to February 2024. This latter decline in Western funding came in parallel to Ukraine being pushed onto the back foot in its defence against Russia. No surprises there.

Western funding to Ukraine is insufficient, poorly coordinated, with little long term plan/stratagy. It tends to be ad hoc, drip fed. There is no comprehensive long run funding strategy for Ukraine, and particularly not for a scenario where Trump wins the US election. Putin has by contrast tried to deliver that long term war resourcing vision for Russia.

Sad that the West does not really comprehend what is at stake here, and is not funding Ukraine adequately to win - hence our campaign on the frozen Russian assets issue to fill the gap.

Fortunately, China’s support for Russia is hardly wholehearted. China is not providing direct military support, and limited equipment/munitions - hence Russia’s resort to sourcing these from Iran and North Korea.

Why is China not going all in?

Well China is eager not to damage its pre-eminent global relationship that with the U.S.  It is eager not to make the trade war any more intense, and is mindful of not being heavily sanctioned.

So while Putin might view China as its main international counterparty, the feeling is not really reciprocated by Beijing. Moscow is useful to Beijing for sure, but it is now something of a bit player.

Instead China is trying to toe a line between Russia and the U.S. Where China can it is taking advantage of Russian weakness and increased dependency to buy cut price Russian commodities, diverted from traditional markets for Russia in Europe, and increasing selling non military exports to Russia at top dollar, or Yuan. As a result bilateral trade between China and Russia increased by around one quarter in 2023 to a record of $240 billion - the balance being to China’s advantage.

The West has been nervous about the growth of this trade, and particularly by the increase in Chinese exports of dual use technology to Russia. But China is mindful of not further damaging relations with key Western trade partners, and threats of secondary sanctions on Chinese entities is now showing signs of moderating this trade - with Chinese exports to Russia falling year on year in March and April 2024. Again evidence that China is tip toeing around the various player here. I think Xi’s visit to Europe this week will have affirmed the importance to Europe of the war in Ukraine being a direct threat to European security and that if China wants European allies in global trade wars it will have to carefully manage its relations with Russia not to push Europe further into the U.S. camp.

It is importantly also to recognise that Sino - Russian relations also have their stress points.

First, tensions/rivalries and border disputes in the Russian Far East remain. The Xi - Putin summit this week appeared to recognise these with new agreement aimed to try and reduce these. But the tensions run deep - many Russians ultimately see China as the biggest long term security threat to Russia.

Second, while China’s decision not to arm Russia forced Moscow to look to North Korea, Beijing is nervous/irritated now about the deepening bond between Russia and North Korea - in its backyard. It worries that the price of North Korea supplying munitions to Russia would be deeper cooperation with Rusisa to further enhance Pyongyang’s nuclear and ballistic weapons programme. A more military potent North Korea, less dependent on China is not in Beijing’s interest.

Third, thru its invasion of Ukraine, Russia has signalled that it is a global disrupter, literally a loose canon which wants to change the global status quo, on security but also showing a willingness to act in a rash manner that risks disruption to global markets. China, by contrast, has long appreciated the rules based international order which delivered globalisation, free markets and trade and what it saw as the inevitable Chinese accent to global economic hegemony over the U.S. - and with it military hegemony. So the invasion of Russia has complicated China’s big picture global strategy - to some extent it might have given it leverage over the U.S. on the sanctions front: “if you go too far down the trade wars front we will up military support for Russia”. Notable also though that China appears to have set some guardrails for Russian actions in Ukraine - clearly signalling it would not support the use of nuclear weapons by Russia in Ukraine. See therein China’s 12 point peace plan on the war in Ukraine which included reference to the nuclear issue.

https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html

China, which likely was surprised by the war initially  - at least in terms of its long duration, as Putin might have indicated a quick win was expected - it now appears more comfortable with a longer war, as long as guard rails are put in Russia. The long war ultimately weakens Russia, making it more dependent on China, while allowing China to buy cheap commodities and charge top dollar for key exports to Russia. And Russia’s struggles in Ukraine I think just underlines where it might not have been clear (at least to Putin) in early 2022 who was the junior partner in the China - Russia relationship. The war has clearly spelled out that China is the big brother in the Russia - China relationship, and Russia, some would more likely say, more like the runt of the litter. China favours Russian weakness, but not defeat - it was worried in mid 2023 with the Prigozhin mutiny and risks of a collapse of the Putin regime and perhaps even then centrifugal forces in the Russian Federation. Putin survived that mutiny, much to the relief of Beijing, as a collapse of the Putin regime might have risked further Western encroachment (this time into Russia) or the actual political disintegration of the

Russian Federation itself which would have created security risks to China at least.

So Xi gave Putin the visit he so desired and both I think signalled different points to the elephant not in the room - the US. Putin that Russia is preparing for a long economic struggle for Ukraine. And Xi, that if the US wants to avoid a bad outcome in Ukraine, then it needs China to play ball and limit its support to Russia, and the price of that will be concessions on issue such as trade.