Talking Point

A silent partner

Xi meets Putin, but China’s response to the war in Ukraine is subdued


Chinese President Xi Jinping leaves Kazakhstan this week, on his way to a summit in Samarkand

The impact of one of the more decisive interventions of the Second World War is still being felt today. But it wasn’t a military battle. The frontline was actually in rural New Hampshire in the United States, where more than 700 delegates from 44 countries gathered in the summer of 1944 to redefine the post-war economic order.

The Bretton Woods conference – or the United Nations Monetary and Financial Conference in its formal title – met for three weeks, laying the ground for the creation of the International Bank for Reconstruction and Development (later part of the World Bank) and the International Monetary Fund. In political terms the conference was also a signal of American primacy in the post-war world, heralding the decline of sterling as the world’s reserve currency, and the US dollar taking its place.

With Russia’s invasion of Ukraine creating chaos on the fringes of Europe, another major shake-up of the international order could be imminent. Trade flows, particularly in energy, are being dramatically reshaped, with talk of a wider struggle as countries come under pressure to pick sides between diverging political and economic blocs.

China is a key player in how the new order might take shape, of course, making the visit of its leader Xi Jinping to Central Asia more significant this week, especially a session in Samarkand in Uzbekistan, where Xi met Vladimir Putin.

That stirred questions about how the Chinese might show more support for the Russian president at a time when the conflict in the Ukraine is putting the Chinese in a potentially awkward position, with hostilities showing no sign of coming to an end.

Xi heads overseas again, as the Party Congress looms

Ten years ago this month, when the Communist Party of China (CPC) was preparing for its 18th National Party Congress to pick its senior leaders for the next decade, Xi Jinping went missing from public view for two weeks. The president-elect even skipped a meeting with US Secretary of State Hillary Clinton, prompting talk of political infighting and a troubled transition of power.

Speculation in the foreign media was intense, including rumours of a car accident, an assassination attempt, or simply that Xi was laid up at home with a bad back.

But the gossip came to an end with the publication of two photos of the leader-in-waiting– one showing him walking around, another inspecting ears of corn. Soon afterwards Xi was confirmed as the successor to Hu Jintao as president of China, and general secretary of the CPC.

As the CPC gears up for its 20th congress next month when Xi is widely expected to break an unwritten rule and secure a third term, the dust seems to have settled much earlier in the process. The date of the congress – on October 16 – is earlier than most people expected. And Xi must feel comfortable enough with the situation to leave the Chinese capital for a few days on visits to Kazakhstan and Uzbekistan this week, including a session of the Shanghai Cooperation Organisation (SCO) in Samarkand.

“Xi Jinping is going out of China for the first time since the pandemic in the run-up to the Party Congress. If there were going to be plottings against him this is when they would happen. And he’s clearly confident that the plottings are not going to take place because he is out of the country,” Steve Tsang, director of the China Institute at the School of Oriental and African Studies in London, told Singapore’s Strait Times.

Xi last travelled overseas in January 2020 for a state visit to Myanmar. A few days after he got back he would order a citywide lockdown of Wuhan as the Covid-19 outbreak began to take hold.

It would be premature to interpret Xi’s return to the international stage as a signal of the relaxation of the ‘zero Covid’ policy in China, the South China Morning Post says. But there may be a gradual relaxation of Covid controls ahead, as indicated by the travel plans of China’s senior figures.

What about a trip to Russia? Wouldn’t that show support for Putin?

Xi is unlikely to visit Russia in the foreseeable future but one of his colleagues did journey there last week. Li Zhanshu, the number three in the CPC hierarchy, was the highest-ranking figure to travel abroad for some time. According to Xinhua news agency, he also met Vladimir Putin in the far-eastern city of Vladivostok, at the Eastern Economic Forum (EEF) hosted by the Russian government.

Putin grabbed the opportunity to drive a wedge between attendees and his opponents elsewhere. “Western countries are seeking to preserve yesterday’s world order that benefits them and force everyone to live according to the infamous ‘rules,’ which they concocted themselves,” he warned.

In a statement published by the Duma, the Russian parliament, Li was said to have relayed Beijing’s support for Russia’s action in the Ukraine too. “We fully understand the necessity of all the measures taken by Russia aimed at protecting its key interests, we are providing our assistance,” he was quoted as saying.

The two governments would step up efforts to counter NATO’s expansion and the US-led effort to keep the two nations in check, Li promised, according to reports in the TASS news agency. “We will battle together their hegemony and the policy of force,” he said.

Significantly, the same remarks didn’t appear in Xinhua’s report of Li’s visit. That might seem like a surprise – after all, China’s foreign ministry had celebrated a “no limits” friendship with Russia in February, cemented by a meeting between Putin and Xi at the Winter Olympics.

Analysts responded immediately, seeing the vow as a challenge to the US-led global order and another signal of Beijing’s determination to push for a more multipolar world.

In that kind of context, Putin may have hoped for more support from his Chinese counterpart in his foreign policy, especially as the war takes another unexpected turn with the Ukrainian gains on the ground in recent days.

Yet the reaction from Beijing has been cautious in the extreme. Part of the problem is how to respond to the invasion without appearing to support a clear violation of sovereignty – a touchstone theme in Chinese foreign policy. Another complicating factor is how to proceed without solidifying the closer ties between the US and the European Union as a result of the crisis. The EU’s astonishment at Putin’s behaviour has turned into darker fury with the explosion of its energy markets. That’s giving the Biden administration, which was already working hard to repair the diplomatic damage of the Trump era, a major opportunity to refresh relations with European governments.

All of this is putting the Chinese in a difficult position. They have been careful not to condemn the Russians. But they have stopped short of showing fuller support by selling them military supplies (unlike the Iranians and North Koreans, it is being reported) or offering financial assistance.

Instead they are avoiding overt signs of solidarity, knowing that it could cast them as a more direct ally of the Kremlin, and even make them a target of economic and financial restrictions by the anti-Putin alliance.

“China has not stepped up to supply Russia with weapons or advanced electronics during the war,” Iikka Korhonen, head of research at the Bank of Finland Institute for Economies in Transition, told Bloomberg. “They are mindful of not violating these actions, at least not in an obvious way, so there are limits about what these so-called allies are prepared to do.”

How else can China show support?

Beijing’s clearest support for the Kremlin has come from trade with Moscow, with Russia’s exports to China surging nearly 50% to $40.8 billion in the first five months of the year, according to IMF data.

The Russians are looking for new markets for products that are no longer in the same demand in Europe and hoping to source new suppliers for items they can no longer import from the EU, for instance. That’s contributed to a situation in which “economic blitzkrieg tactics” from Western governments have failed to paralyse the Russian economy as planned, as Putin described it, in a speech from the Kremlin on Monday.

“The sudden attack they were counting on, did not work – this is already obvious to everyone, and to them too.”

The campaign against Putin has comprised a series of sanctions, including seizures of some of the assets of the Russian central bank, cutting Russia out of the international clearing system SWIFT, and curbing the exports of Russian oil and gas.

Some of these actions have brought a closer alignment in the interests of Moscow and Beijing, who don’t want to be dictated to by Washington.

Defiance of dollar hegemony is a good example. The Russians have been preparing for “an inevitable de-dollarisation” since the annexation of Crimea in 2014, China’s Guancha news portal suggests, with recent events highlighting the need to dethrone the dollar from a position that has gone largely unchallenged since Bretton Woods.

Russian bank VTB was the first lender to launch money transfers to China in yuan this week. In a bid to sidestep SWIFT, single transfers of up to 20 million roubles (or $325,000) are permitted, the Russian media reports, with monthly transaction limits of 100 million roubles.

Speaking at the forum in Vladivostok, Putin tried to tap into Chinese enthusiasm for a decline in the dollar’s influence. In fact the yuan has made relatively slow progress as a currency of choice for central banks and investors. But it has made more gains as a payments currency, with Putin arguing last week that currencies like the dollar and the euro are losing their credibility at a time when Asia’s leading economies are making their own claim to future prosperity.

“Step by step we are moving away from the use of these unreliable, compromised currencies,” he said, giving the example of his own energy heavyweight Gazprom, which is taking a greater share of payment for its gas in roubles and yuan.

What’s Gazprom’s latest deal with China?

Gazprom has a monopoly on Russian gas exports by pipeline, including a major contract signed in 2014 to export gas to China for 30 years. It signed another deal in February to increase gas supplies from 2023 via the Eastern Russia-China Natural Gas Pipeline. Shortly after Putin’s speech in Vladivostok last week, Gazprom and Chinese energy giant CNPC also announced another pact in which the Chinese will pay for gas based on a 50-50 split between the Russian and Chinese currencies.

China and Russia were already doing more business in the energy markets before the Ukrainian crisis began. According to data from the Chinese customs, more than Rmb360 billion worth of natural gas was imported last year, or 56% more than 2020. Taking into account the latest agreements, Russia will soon become China’s largest gas supplier, Gazprom says, with contracted volumes reaching 48 billion cubic metres a year.

This expansion needs to be seen in a context in which Group of Seven governments are trying to constrain sales of Russia’s energy commodities by enforcing upper limits on how much other countries pay for Russian oil and gas. Yet achieving this goal will require cooperation from other importers, with reports that the Russians are pricing their oil at 30% discounts to standard international rates. Indian refiners have also boosted their purchases of Russian energy significantly this year, for instance, with Reuters reporting that the Indians have agreed to pay for more of their coal imports from Russia with Asian currencies as well.

Enforcing price controls on Russian energy exports is going to be difficult, but all the more so if major customers like China and India refuse to take part.

Why is the SCO important this week?

On Wednesday Xi travelled to Samarkand for a summit of the Shanghai Cooperation Organisation (SCO), an alliance with a focus on security issues.

Other leaders from India, Pakistan, Turkey and Iran were set to attend the gathering but the majority of the media focus was on Xi’s second in-person meeting of the year with Putin, which the Kremlin described as “of particular importance”.

“All members of the SCO stand for a just world order,” added Kremlin foreign policy adviser Yuri Ushakov, describing the summit as taking place “against the background of large-scale political changes”.

Critics of the SCO say the grouping is more talk than action. But as WiC reported earlier this year, it also offers another counterpoint to the Western-led order, in the same way that Beijing has hopes of the BRICS nations working more closely together to advance their own interests at Washington’s expense.

In light of recent events, this week’s summit in Samarkand had more symbolism than usual, it could be argued. By meeting with Putin, Xi was sending the message that the Russian president isn’t as isolated as his opponents claim. Putin’s supporters will go further, seeing it as a sign of moral support from Beijing, even if material backing has been lacking.

And sure enough, Putin was soon referencing Moscow’s relationship with Beijing in remarks to Xi, who he greeted as an “old friend” and “dear comrade” at the summit.

“We highly appreciate the balanced position of our Chinese friends in connection with the Ukrainian crisis,” he said in his opening speech. “We understand your questions and your concerns in this regard, and we certainly will offer a detailed explanation of our stand on this issue during today’s meeting, even though we already talked about it earlier,” he added.

Xi’s response was carefully calibrated, however, in signalling that there is some common ground with the Russians, but also positioning the Chinese as a moderating influence, determined to bring the crisis to an end.

“China is willing to work with Russia to play a leading role in demonstrating the responsibility of major powers, and to instil stability and positive energy into a world in turmoil,” he said.

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