President Xi welcomes President Putin

Xi Jinping rolled out the red carpet for Vladimir Putin as China and Russia seek ways round US tariffs and bans.

| 5 min read

Hot on the heels of his return from Europe, China’s President Xi Jinping rolled out the red carpet and ordered the brass bands to play to honour Russia’s leader. The talks that followed will be only partially reported to the world. Doubtless there will be plenty of secret discussion of how to route products around the world escaping US sanctions.

China will be keen to promote its alternative financing and settlement systems. Both countries will search together for new markets to replace lost western business as the bans, tariffs and sanctions against them mount. Both are adept at using third countries not on Western sanction lists to finish or divert products destined to beat controls and tariffs.

Whilst China is widely perceived to be in the stronger position, President Xi will not be helping Russia as an act of charity. China benefits from cheap Russian energy, made cheaper by Western limits on purchases and prices. China wishes to develop an alternative financial system to the West and Russia is a useful customer. Joint weapons development and a complex system of alliances with countries not locked into the Western networks requires the work of both countries to maintain and grow it.

Any analyst or investor now has to ask about any company they are thinking of investing in if they are obeying the increasingly restrictive rules of trade and settlement when it comes to business with China, Russia and their satellites and allies. There is potential to lose business and suffer reputational damage if a western company knowingly or unknowingly is party to bending or breaking the rules.

President XI seeks to wobble Europe

China’s rivalry with the US has become more intense in recent years as China’s economy gets closer to the scale of America. Meanwhile, China wishes to build its strength further and is in the process of trying to detach friends from the US camp. China still needs access to Western technology and markets to raise living standards and to pay for a major modernisation and expansion of its military forces.

President Xi’s recent trip to Europe was designed to help detach Europe from the US a little more, and to create divisions within Europe. He crafted important speeches. He sees some parts of Europe as the weak links in the Western alliance. He concentrated on France, Serbia and Hungary, whilst seeking some new understanding with the EU as a whole.

The old debates in the EU over whether to deepen the engagement between the Western members or whether to drive for a much wider membership to the east has been resolved in favour of doing both at the same time. There is a list of candidate countries to join who are in negotiation, including Ukraine and Georgia on the Russian border.

Serbia is a candidate whose government is pursuing more authoritarian policies, delaying any chance of concluding the negotiations with a positive outcome any time soon. President Xi went to Serbia to encourage the tendencies of its President. There President Xi proposed deepening and expanding the comprehensive strategic partnership. He went on the 25th annual remembrance of the accidental US bombing of the Chinese Embassy in Belgrade and wanted his hosts to recall with him the US action.

China and Hungary share similar views and positions on international and regional situations.

Xi Jinping

President Xi flattered France praising the country as a crucial leader and model of Western civilisation to contrast and complement China as a leader and model of eastern civilisations. He explained that “for 60 years China and France have remained devoted friends of each other. We have both always committed to the principle of independence, mutual understanding, strategic vision and win-win co-operation.” He claimed “Our two countries do not have geopolitical conflicts. We do not have clashes of fundamental interests”. He values French independence from the US line and some differentiation from the EU line. He sees France as more flexible and a possible advocate for China in Europe.

In Budapest, President Xi talked of an “all weather comprehensive strategic partnership for the new era “with Hungary. He argued “China and Hungary share similar views and positions on international and regional situations”. He understood Hungary is a difficult partner within the EU and is prepared to back actions by China or Russia that the rest of the West dislike.

A bifurcated world

The two-bloc world is taking further shape. China will use US sanctions against itself and Russia’s problems with the West brought on by the Ukraine war to strengthen and extend an alternative trade and payments network outside western sanctions. The West will need to spend more on defence, on cyber protection and on policing the official trading and financial arrangements. Making moves against Russian sovereign assets in Western banks will reinforce the determination of China and Russia to put more of their activities and wealth beyond the reach of the US and the Europeans.

The more Russia and China retreat to a comfort zone dealing with authoritarian and anti-Western countries and the more they find illegal ways to trade and pay, the less investible they become for western savers. Investors need to stick to western law and rules. Western companies must become more alert to the dangers of dealing with countries that only play by Western rules when it suits them.

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President Xi welcomes President Putin

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