China’s Long Game

Date: 6/21/2022
Author: Mr. X


Europe is suffering from a potential energy crisis because of its attempt to exclude Russian oil. Not surprisingly, Russian exporters are simply finding new markets. India has been one of the largest purchases. More importantly, Russia has now become the biggest supplier of oil to China. Heavily discounted Russian oil provides a needed boost to Beijing’s economy, which is struggling after some self-imposed wounds caused by an impractical “zero COVID” policy.

Without Chinese oil purchases, it’s doubtful Russia would be continuing with its “special military operation” in Ukraine. American diplomatic efforts soon after the war began no doubt included some tempting offers for China if it helped to economically isolate Russia. Yet China enabled Russia’s economic survival… up to a point.

In spite of the previous declarations about a “no limit” alliance between the two countries, China has not responded to more direct requests for economic aid. While China is certainly not backing the West, it is not behaving as a Russian ally. This hasn’t gone unnoticed by the United States. Secretary of State Antony Blinken recently said the federal government doesn’t see a “systematic effort” by Beijing to help Moscow avoid sanctions.


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In fact, China seems to be taking sanctions very seriously. Vladimir Putin has even reportedly complained about it during a meeting with top officials. In March, China even said it was “not a party to the [Russian-Ukrainian] conflict” and didn’t want sanctions to affect its economy. Yet that doesn’t mean China is reconciling itself to American diplomatic leadership long-term. Instead, China is beginning a very long game. Russia serving as the battering ram against the current world order, but it’s the Chinese who will rush through the gap.

In March 2022, not long after the invasion began, China said it opposed sanctions in principle. “China always opposes the use of sanctions to solve problems, and even more opposes unilateral sanctions that have no basis in international law, which will undermine international rules and bring harm to the people’s livelihood of all countries,” said Foreign Minister Wang Yi.

In May, the Communist Party announced that those who had significant assets abroad (even if owned by family members) would not be allowed to rise to the top ranks. Some Russian oligarchs and former Putin supporters have turned on him because they lost money because of Western sanctions. China’s move to discourage ownership of foreign assets ensures this will never happen to Beijing. It also arguably creates a more insular ruling elite, as foreign contacts and business enterprises are now bad for an individual’s career.

Finally, less than two weeks ago, China unleashed a sanctions program of its own. China now has the legal framework to respond against the limited sanctions that the West has already imposed against Beijing. Those who helped design the sanctions could lose their ability to travel to China or even have their property taken by the People’s Republic. How far China will go isn’t known. “[T]hat ambiguity has already sent a chill through the business community, which is being required to develop China-specific standards and operations separate form their global operations, as China creates its own legal landscape,” reports NPR.

China and Russia are also making some symbolic shows of unity. Chinese and Russian ships patrolled close enough to Japan to cause that nation to go on high alert. President Xi Jinping recently said China is “willing to work with Russia to continue supporting each other on their respective core interests concerning sovereignty and security,” in comments released by state media. “Today our cooperation between Russia and China are rising,” said Jinping at the St. Petersburg International Economic Forum. At that same forum, Putin made remarks about a new world order in which various great powers operating from various “centers” would replace the American-led economic order.

He said:

After declaring victory in the Cold War, the United States proclaimed itself to be God’s messenger on Earth, without any obligations and only interests which were declared sacred. They seem to ignore the fact that in the past decades, new powerful and increasingly assertive centers have been formed. Each of them develops its own political system and public institutions according to its own model of economic growth, and, naturally has the right to protect them and to secure national sovereignty.

One could argue that Russia’s slow-motion war against Ukraine shows that it is not really a great power or a “center” for an entire geopolitical bloc. Instead, it’s a relatively weak state looking to its imperial past for legitimacy and thus pursuing an unsustainable policy. Chinese leaders are reportedly stunned at the Russian military’s poor performance and studying its lessons. China’s former diplomat to Ukraine, Gao Yusheng, even  referred to Russia’s “obvious decline” before his speech was censored.

China is watching the Russian invasion as a test case. The one unconditional objective that the United States can never support and that the Chinese leadership must always pursue is Beijing’s sovereignty over Taiwan. It’s as valuable as Crimea is for Russia. It will not risk its own wealth by backing Russia more energetically. At the same time, it’s forcing Russia to prove whether it really is a great power by watching it being tested on the battlefields of the Donbas. There’s also the ever-present danger of a declaration of independence from Taiwan, something that China has said in-and-of-itself would be a declaration of war.

Russia will remain in this war for the long term, perhaps for many years. It will continue even if President Putin’s leadership doesn’t. Many speculate about his health. It’s undeniable that a leader who put physical strength at the center of his public image is now in decline. In recent appearances, he’s grimaced, twitched, and shown other signs of suffering from chronic pain. Yet imagining Putin will die and that will magically bring an end to the war is wishful thinking – the same kind of wishful thinking from those who thought Moscow wouldn’t invade.

Even if President Putin is dying, it’s doubtful he hasn’t planned for succession or that potential candidates wouldn’t follow his policies. For example, former president Dmitry Medvedev was once considered a moderating influence. His supposed pro-Western beliefs may have even been a reason Putin thought he had to reclaim direct control of Russia.

Yet now, Medvedev is arguably more anti-Western than Putin himself. “I hate them,” he posted on Telegram earlier this month. “They are bastards and degenerates. They want death for us, for Russia. And, as long as I live, I will do everything to make them disappear.” I suspect this attitude is common among anyone who might succeed Putin.  

China is also taking steps to become a more insular, self-sufficient and autonomous power. Beijing sees itself as a “center” that will have a place in the new multipolar order. It’s simply watching Russia take the hits so it can learn about the West’s economic and political weapons. If and when China does move on Taiwan, it will not fall into the same traps that Vladimir Putin did. Its current restraint shouldn’t be regarded as inaction. It’s preparation.

Investors should begin to consider a world beyond globalization. They should consider that the “rules-based international order” defended by American power is already collapsing. Globalization and free market liberalism were a historical oddity and we may be returning to older, darker views of geopolitics and great power competition. For that reason, long-term investors should be cautious about investing in companies that operate in both the United States and China. Eventually, I think they’ll have to make a choice.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.

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