At the start of the winter Olympics, China’s President Xi Jinping met President Vladimir Putin of Russia to sign and publish a comprehensive new agreement between the two countries. It set out a big international model of the future in which Russia and China will co-operate to provide an alternative vision to a world shaped by US and wider Western values of democracy, human rights, freer trade and protection from terrorism.
The document portrayed US ideology and actions as divisive and unhelpful. The Chinese-Russian alternative would be pursued through the United Nations and the World Trade Organisation, with strong links to emerging countries through China’s Belt and Road and Russia’s Eurasian Economic Union.
Although not mentioned by name, the US was charged with imposing unilateral sanctions, with bullying and with seeking extra-territorial jurisdiction over others. The two nations pledged to “oppose the further enlargement of NATO and call on NATO to abandon its ideologised cold war approaches”.
Two-nation partnership against US
Each country was offered the support of the other for those areas where they clash with the US or wider-world interests. China got Russian support in its defence of its actions over the origins of the pandemic, for its belief in “One China” with no independence for Taiwan, for its ways of influencing the Indio-Pacific region and opposition to the trilateral security partnership between the US, Australia and the UK.
Russia got assurances of support for its view of the outcome of the Second World War, for resisting NATO expansion in Europe, and implied support for Russian activities in adjacent countries. They both confirmed their wish to resist “attempts by external forces to undermine security and stability in their common adjacent regions, intend to counter interference by outside forces in the internal affairs of sovereign countries under any pretext, oppose colour revolutions, and will increase co-operation in the aforementioned areas”. Russia is still stung by Ukraine’s Orange Revolution and Georgia’s Revolution of Roses.
Russia’s approach is being tested by the government’s need to suppress dissent.
The two have an alternative view of democracy to the Western model, which is based on competing parties offering choices, underpinned by free speech and a media that is free to criticise and expose.
China’s model is different and currently on display, with the meetings of the 13th National People’s Congress. We are told this is “an important channel for socialist consultative democracy and an institution designed with Chinese characteristics”.
Russia’s approach is being tested by the government’s need to suppress dissent over its Ukraine invasion. Moscow wishes to work more closely with India and wants to link Asia with Europe more tightly through their trade and investment organisations.
All this matters to world governments and economies. China has sought to distance itself a little from the extreme use of violence by Russia in Ukraine but is staying true to the principles behind the agreement. China would not vote against Russia in the Security Council, does not deny its special relationship with Russia – and is helping find ways round western sanctions. Russia is turning more to China for banking arrangements and as a possible alternative market for more of its gas and oil.
China has urged Russia to offer humanitarian safe corridors for those civilians who wish to escape the war around their city homes in Ukraine – and has offered to help broker a peace. The cautious words over Russian actions are partly related to Beijing’s wish to avoid being sanctioned alongside Russia. China will offer practical trade and banking help to Russia but will probably ensure that she comes out well from the situation, tipping the power balance more in Beijing’s favour in the two-country alliance, whilst also making money from the contracts diverted to China.
China is forecasting inflation below 3% at a time of much-faster US and European price rises.
Meanwhile, at home, China is telling its public through the National Congress that their country is largely insulated from the economic stresses the European war is causing. China’s dual-circulation system, with a domestic economy partly protected from global influences, is being used with price controls, subsidies and other interventions to limit inflation and keep supplies flowing.
China is forecasting inflation below 3% at a time of much-faster US and European price rises. It is forecasting 5.5% growth this year and can blame global dislocations for its rate of output growth not being faster. This implies some further monetary loosening.
Beijing gaining control of the economy
The continued firmness about avoiding asset bubbles and the need to crack down on corruption implies persistence with money growth around nominal GDP growth. The government plans some more fiscal stimulus through local-authority programmes, though some of them are reluctant to take the risks of more debt. The government also plans tax cuts and other support for smaller companies. It wishes to invite in more foreign investment to offset the US stance against technology transfer and trade. The defence budget will be lifted by 7% and China will add to fuel stockpiles.
China seems to be handling the fallout from Beijing’s attack on excessive property speculation and is introducing house-price stabilisation as a further part of its growing array of price controls, nationalisations and government controls.
Investors will also be cautious about its attempt to build a rival world system to compete will the US-led Western democracies.
China is busily building its national resilience, with more domestic capacities and more control over crucial minerals and supplies abroad. It is building a large and more sophisticated military. The economic numbers for inflation and growth will look good by comparison with many other countries this year, but the country will suffer a discount valuation given its approach to human rights, its new emphasis on nationalised activity and strong government controls.
Investors will also be cautious about its attempt to build a rival world system to compete will the US-led Western democracies, where most leading markets currently reside.
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