China may live to regret propping up Putin

The G7 oil price cap has led to an effective discount of $US40 a barrel on Urals crude sold on Asian markets. The Kremlin had to draw down almost a quarter of its $US186 billion ($272 billion) rainy day fund in January – including gold sales – to cover the collapse in budget revenues. The fund’s liquid component is down to $US84 billion.

Selyanin warned that Russians will start to feel economic pain in earnest after last year’s misleading resilience.

US Secretary of State Antony Blinken said at a security conference in Munich last week that intelligence indicates that Chinese companies are considering “providing lethal support” to Russia.

US Secretary of State Antony Blinken said at a security conference in Munich last week that intelligence indicates that Chinese companies are considering “providing lethal support” to Russia.Credit:AP

Putin may find ways to circumvent the G7 blockade or to narrow the price discount. But the West has a stranglehold on the 90 per cent of the global tanker trade through insurance, financing, or control of vessels. His putative “shadow fleet” is not big enough to change the equation.

The Kremlin cannot easily replace lost oil and gas earnings. It lacks a functioning bond market able to mobilise domestic savings on a sufficient scale.

China has the means to prop up Putin’s regime, within limits. It has $US3.2 trillion of foreign exchange reserves, including $US867 billion of US treasuries, and more via proxy holdings in Belgium – which raises interesting questions if the US-China economic war rises to the next level.

China can supply routine chips but itself imports over $300bn a year of semiconductors – more than crude imports – and is vulnerable to a technology squeeze. Washington has already prohibited US companies from selling China the kit and technology used to make advanced chips. Asian allies have gone along with the boycott. They had no choice.

“The interest of the Chinese is to stay alive and prosperous, not to commit economic suicide by supplying lethal weapons to the losing side.”

Roger Garside, a former British diplomat in Beijing

But that is an amuse-bouche compared with what could happen if Beijing pokes Europe in the eye on Ukraine. The West also controls maritime supply routes for oil, coal, liquefied natural gas, iron ore and soya beans. The Chinese and Western economies are so intertwined after 30 years of globalisation that further escalation amounts to mutual economic harm, but that does not mean that the consequences are equivalent. “If the Chinese turn the whole OECD world against them, they do so at their peril. I can’t believe they would be so foolish,” said George Magnus, from Oxford University’s China Centre.

He said China could extend credit lines through the three state agencies that fund the “Silk Road” but this initiative has gone badly wrong, with more and more countries pleading for debt relief. “China has lost its appetite for lending,” he said.

Wang Yi, China’s foreign minister, says his country will not supply weapons. His charm offensive in Europe over the last week seemed mostly aimed at trying to separate France, Germany and Italy from Nato hardliners, while also fanning conspiracy claims about the role of US special forces in bombing the Nord Stream pipelines.

The problem for Xi is that he is fatally invested in his strategic bromance with Putin. He declared “limitless friendship” days before the invasion, signalling his support for military action. A Russian debacle leaves having to explain a colossal and unnecessary setback for Chinese interests.

“I don’t think he could survive that after the bromance. It would set off a leadership crisis in the Communist Party and opponents would use it to get rid of him,” said Garside.

Russia faces decades of economic pain.

Russia faces decades of economic pain. Credit:AP

Xi has used China’s state media to parrot Russian propaganda on the conflict since the war began. He has undermined a core tenet of party doctrine: that the principle of territorial integrity under Article 2 (4) of the UN Charter must be upheld religiously.

By backing Putin’s neo-colonial land-grab he has undermined 75 years of Chinese diplomacy, not that the global south seems to care. Brazil’s Luiz Inácio Lula da Silva blamed Ukraine for provoking the attack. Cyril Ramaphosa, South Africa’s president, is soon to hold joint military manoeuvres with Russia and China, as missiles rain down on Ukrainian children.


Powerful figures in the Communist Party think Xi has devalued the Chinese moral brand and damaged Chinese economic interests by aligning with Putin’s deranged regime.

They think he has picked unnecessary fights with the West, provoking hi-tech sanctions before China is close to technology parity. They think he has killed the growth miracle by turning his back on Deng Xiaoping’s market model. Above all, they think he has misjudged the global correlation of forces. And they are waiting for him to trip.

Telegraph, London

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