Putin needs Xi more than China needs Russia

A special relationship

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On May 9, Vladimir Putin had been due to review a parade of troops and military hardware on Red Square alongside Xi Jinping and Emmanuel Macron. Russia’s coronavirus lockdown forced Putin to cancel the elaborate celebrations of the 75th anniversary of the end of World War Two in Europe — as well as to postpone a national referendum that would have extended his personal rule until 2036. But though Putin and Xi have been deprived of the opportunity to make a show of solidarity amid the sea of Soviet flags that bedecks Moscow annually for…

On May 9, Vladimir Putin had been due to review a parade of troops and military hardware on Red Square alongside Xi Jinping and Emmanuel Macron. Russia’s coronavirus lockdown forced Putin to cancel the elaborate celebrations of the 75th anniversary of the end of World War Two in Europe — as well as to postpone a national referendum that would have extended his personal rule until 2036. But though Putin and Xi have been deprived of the opportunity to make a show of solidarity amid the sea of Soviet flags that bedecks Moscow annually for Victory Day, the coronavirus crisis promises to throw Russia and China closer together than they have ever been.

China needs friends; Russia needs money. Both have long shared a profound desire to topple the United States as the sole superpower of the post-Cold War, unipolar world. Those basic underpinnings of the Moscow-Beijing relationship have been true for most of Putin’s 20-year rule.

But COVID-19 promises to subject Putin’s rule to an economic and political stress test more serious than he has ever faced, thanks to a collapse in oil and commodities prices. The crisis also threatens China’s role as supplier to the world, as a poisonous mix of political anger at China’s early attempts to cover up the scale of the outbreak, a rise in economic nationalism and nervousness about the security implications of globalization take hold in many western countries. To have any chance of surviving the crisis, Putin needs Xi to keep buying his oil and to keep investing in Russian infrastructure and technology. Xi, for his part, needs Putin to help fight his corner diplomatically. Putin can also help with international propaganda.

But of the two great Asian land empires, it’s Russia that faces by far the more profound crisis. At the beginning of May, Russia announced the largest number of COVID-19 infections in Europe, with 198,676 afflicted — albeit with a suspiciously low level of fatalities. With energy demand at historic lows and prices below 1990s levels, Putin is heading into the coming world depression with the oil-money fountain that underpinned two decades of soaring prosperity running dry. Economic sanctions imposed after the annexation of Crimea in 2014 have cut most Russian companies off from international money markets.

The ruble — unlike the yuan — is too weak to count even as a major regional currency, so Putin doesn’t have the option of simply issuing sovereign debt or printing more money without risking hyperinflation. Since 2014, Russia has wisely saved up a decent amount of oil-windfall money — but it’s nothing like the 7 percent of GDP that Putin’s financial guru Alexei Kudrin predicts is needed to save the economy during the COVID crisis.

Add to that a political system based on the personal rule of Putin and a small clique of state oligarchs and old cronies that over two decades has grown seriously sclerotic and increasingly dependent on repression. In short, Putin’s regime is in deep, existential trouble — and he needs Xi more than Xi needs him.

China is in much better shape to weather the storm. Not only does China’s draconian lockdown — backed by ruthlessly effective face-recognition and contact-tracing technology — seem to have beaten the virus, but the economy in most of the country chiefly continued to function throughout the pandemic. Of course, a serious global downturn — particularly in western demand — is set to hit China hard.

But the basic truth that COVID-19 is set to expose is just how far China has outstripped Russia in both economic clout and raw international power since the collapse of the Soviet Union. In 1991, China’s economy was smaller than the USSR’s. Nearly three decades later, China’s GDP is more than $15 trillion and growing (pre-COVID) at more than 6 percent a year — while Russia’s is $1.7 trillion, with 2019 growth languishing at 1.3 percent. Last year, bilateral trade reached a record high of $110 billion — making China Russia’s largest trading partner. Russia, by contrast, is only China’s 13th-largest trading partner, accounting for about 2 percent of exports. Even the UK, at ninth place with 2.5 percent of Chinese exports, is more economically important to Beijing than Russia is.

China has always been careful to remain tactfully silent about the real disparity in economic clout, taking pains to treat the notoriously touchy Putin as an equal strategic partner. When Xi visited Moscow last year, he described Putin as his ‘best friend’, with whom he had a ‘deep personal friendship’. A beaming Putin replied that he was ‘pleased to say that Russian-Chinese relations have reached an unprecedented level. It is a global partnership and strategic cooperation’. Yet it’s telling that Xi does not appear on a chart of world leaders Putin has kept waiting (Angela Merkel tops the list, having waited four-and-a-quarter hours; even Pope Francis waited 50 minutes in 2015). The reason for that is that the RussiaChina relationship has long been, despite the carefully cultivated illusion of great-power equality, one of client and patron.

But it’s also significant that Putin and Xi have met more than 30 times since Xi came to power in 2013. Clearly, economics isn’t everything. Russia holds two geopolitical aces, both holdovers from the Cold War, that remain useful to China: a massive nuclear arsenal and a veto in the United Nations Security Council. Putin has also, largely through a reckless willingness to disregard the international order, managed to overcome Russia’s relative economic weakness and keep his place at the top table of international players.

Putin’s intervention in Syria, for instance, involved a deployment of just a single squadron of 36 warplanes — but turned the tide of the civil war in the regime’s favor and reestablished Russia as a major Middle Eastern player with a minuscule expenditure of blood and treasure. In many ways, Russia’s high-profile and often violent international diplomacy has been the polar opposite of China’s, which has quietly invested hundreds of billions across Africa, in Europe and in the US without trumpeting its stealth takeover of swathes of the world’s economy.

Russia’s friendship does have strategic value to Xi. As China has come under attack from Donald Trump — first in a trade war that has been escalating for a year, and more recently over China’s responsibility for COVID-19 — Russia has loyally defended Beijing. Russian foreign minister Sergey Lavrov condemned calls for China to pay compensation for damages caused by the coronavirus pandemic as ‘unacceptable…my hair stands on end when I hear such things’. Russia’s state- and semi-state-run propaganda channels have also been pumping out a steady stream of pro- China stories, many contrasting the firm and frankly authoritarian measures taken by Russia and China with the chaotic response of the United States.

But despite the bromance affirmed by Putin and Xi in their regular meetings, there’s a fundamental contradiction in Russia and China’s view of a post-American world. Putin has often spoken of a ‘multipolar world’ — something akin to the Concert of Europe of the 19th century, with multiple power blocs in balanced rivalry. China, by contrast, anticipates ultimately forming a kind of G2 with the United States. Putin can afford to be outspokenly anti-American for a simple reason — Russia’s trade with the US and its foreign direct investment are negligible. But China relies on the US for 16.8 percent of its total exports — or $418.6 billion in 2019. Trump’s trade war put a 12.7 percent dent in that figure over the course of last year. China’s economic co-dependence on the US means that Xi still has a strong strategic interest in maintaining friendly relations with it.

Long term, of course, China knows that the real key to toppling the US’s economic dominance is to undermine the dollar as the world’s sole reserve currency. Beijing has already been building its non-dollar-based UnionPay payment system into a regional force — and it’s already widely accepted in Russia. But it will likely be years before the yuan can mount a serious global challenge to the dollar’s dominance.

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In the meantime, the immediate effect of the COVID-19 crisis is likely to be much closer economic dependence by Russia on China. Beijing has already bailed out Moscow in the wake of the Crimea crisis by signing a $400 billion supply and pipeline-building contract with Gazprom. Putin must fervently hope that an expected $400 billion of Chinese investment in his six-year National Projects program designed to revitalize Russia’s infrastructure and tech sector — not to mention an ambitious new railway that would connect the ports of the Arctic and Indian Oceans — will still be forthcoming. In the first week of May, the Kremlin, clearly angling for Beijing’s favor, announced that it was granting permission for the Russian National Welfare Fund to begin investing in the Chinese yuan and Chinese state bonds. Beijing has already helped Russian oil companies weather the slump in global demand by ramping up its purchases of Russian crude oil by 31 percent in March.

Xi’s price will be political obedience, extracted slowly and subtly. One area where Putin will have to rein in his independent foreign policy is in North Korea. Kim Jong-un has for years tried to play Moscow against Beijing, a game which has irritated Xi. Russia will also likely be asked to lend serious political support — as opposed to lip service — to the Belt and Road Initiative, China’s proposed crossEurasian trading infrastructure, as well as Beijing’s stalled Eurasian Economic Union.

From the Chinese point of view, bringing Russia closer into its sphere of influence would represent a piece of neat historical revenge. The Chinese preamble to the first trading agreement between the two empires, signed at Nerchinsk in 1689, noted that trade with Russia ‘does not benefit China, but because the Great Emperor loves all human beings he sympathizes with your little people who are poor and miserable, and because your Senate has appealed to His Celestial Majesty He has agreed to approve your petition’. That high-handedness proved short-lived. Over the next 300 years the upstart Russian empire annexed swathes of Chinese territory north of the Amur river, built Moscow-controlled railways across its northern territories and, for much of the Cold War, was unsupportive and even downright hostile to its neighbor despite their shared communist faith. Now, after a series of rash military adventures, Putin finds himself with no friends but China to save him in the most serious political and economic crisis that he has yet faced. China will help — but Xi is set to get the better end of the deal.