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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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China's "No Limits" Friendship with Russia is Beginning to Crumble

  • China's economic power and influence have grown significantly compared to Russia.
  • China faces limits in its support for Russia due to Western sanctions and the evolving global geopolitical landscape.
  • The U.S. and its allies express concerns about China's technology transfers to Russia and potential implications for European security and the Middle East.
Xi

In a joint communiqué on 4 February 2022, China and Russia stated that: “Friendship between the two States [China and Russia] has no limits, there are no forbidden areas of cooperation.” This followed the first in-person meeting between Chinese President Xi Jinping and his Russian counterpart Vladimir Putin for nearly two years, at the opening of the Winter Olympics ceremony in Beijing. Just over two weeks later, Russia invaded Ukraine in what most observers at the time believed would be a conflict lasting two or three days before Putin’s forces secured an easy victory. However, as the fighting continued and became bogged down in fierce urban warfare across several major cities, the first sign emerged that China’s relationship with Russia might not be as limitless as Putin imagined it to be. Xi held urgent talks with Putin and advocated peaceful negotiations between Russia and Ukraine, as analysed in full in my new book on the new global oil market order. At the same time, China’s then-Foreign Minister Wang Yi told senior European officials that China respects countries’ sovereignty, including Ukraine’s. These strong and swift interventions by China shocked Putin, according to a senior Moscow-based source close to the Russian government and another senior source in the European Union’s (E.U.) energy security complex, both exclusively spoken to at the time by OilPrice.com. He had apparently been certain before the invasion that China would stand by Russia whatever it did, in line with the ‘no limit’ friendship joint communiqué. According to the same sources spoken to again by OilPrice.com last week, following new sanctions imposed by the U.S., U.K, and E.U. in recent weeks, with more to come, Putin is facing even more limits on the support he can expect from China.

At the most recent meeting between Xi and Putin on 16 May in Beijing, the Russian leader would already have been aware that the power dynamic between the two countries had markedly shifted not just from where it was before China’s rapid economic growth from the mid-1990s but also from where it was even before Russia invaded Ukraine. In economic terms, China’s GDP is now over ten times the size of Russia’s (US$20.2 trillion in 2023 versus US$1.9 trillion). Militarily, Beijing spends nearly three times more than Russia (US$296 billion last year compared to US$109 billion). And politically, China’s degree of influence across the world has continued to expand, most notably through its ‘Belt and Road Initiative’ (BRI) and its now de facto leadership of the Shanghai Cooperation Organization (SCO), as also detailed in my new book on the new global oil market order. The SCO has become the world’s biggest regional organisation both in terms of geographic scope and population, covering 60 percent of the Eurasian continent (the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of global GDP. The operational scope of the SCO ranges from collective security and military cooperation (in the mould of the North Atlantic Treaty Organization, ‘NATO’) to economic union (in the manner of the European Union ‘EU’). 

In philosophical terms, the SCO can reasonably be said to still believe in the idea and practice of the ‘multi-polar world’. However, following the economic decline seen in China through its Covid years, and the increased political cohesion between the U.S. and its key security alliance partners in the West and East after Russia’s invasion of Ukraine, Beijing is aware that it must tread lightly in any attempts to challenge the U.S. and the West directly, as also analysed in full in my new book on the new global oil market order. The idea that China will overtake the U.S. as the world’s leading economy by GDP in the next ten years or so now looks increasingly fanciful. Militarily, China also knows that the U.S. has been an economic superpower for well over 100 years, which means that Washington has been spending a lot more money on a lot of things that matter militarily – personnel, technology, communications, global political connections - for a lot longer than Beijing. It has also fought many more wars, giving it much greater operational awareness than China and a command and communications coordination capability far greater than that of either Beijing or Moscow. Even now, the U.S.’s military spending per annum is more than three times that of China’s, at over US$916 billion. In sum, in a direct non-nuclear confrontation with the U.S., the high likelihood is that Beijing would lose, and would lose quickly. Moreover, the ability to date of the U.S. and its allies to leverage their influence in key Middle Eastern states to stop the Israel-Hamas War from escalating across the region – at the same time as supporting Ukraine in its fight against Russia - still shows that the Western alliance can deal with at least two ongoing wars simultaneously. It does not appear out of the question that the alliance could even deal with three such conflicts should China indeed try to invade Taiwan by 2027.

Given this and China’s still-vulnerable economy, Putin will likely have been aware that the latest joint communiqué of 17 May 2024 – underlining a “new era” of opposition to the U.S.’s hegemony in several key issues – is just words. In the world of realpolitik, U.S. Secretary of State Antony Blinken made it clear during his recent trip to Beijing that China is “helping fuel the biggest threat” to European security since the Cold War by exporting technology and components essential for Russia’s ongoing conflict in Ukraine. Privately, according to the Russian and E.U. sources spoken to by OilPrice.com, the U.S. has expressed the same concerns about such technology transfers being used by Russia through its Iranian proxies Hamas and Hezbollah in the Middle East. “China’s insistence that these exports are used solely in a regular commercial capacity cuts no ice with anyone, and this is a sharp red line now [for the U.S., U.K., and E.U.,” the E.U. source exclusively told OilPrice.com last week. As part of what will be a laddered approach of escalating sanctions from now on, depending on how China continues to act regarding Russian aggression in Ukraine and the Middle East, is the U.S.’s slew of new sanctions against Beijing and Hong Kong-based banks and companies that work with Moscow in allegedly helping to evade existing sanctions. “The same applies to the new E.U. tariffs on China’s electric-car makers – a major growing part of its economy – and these can be ramped up at any point,” the E.U. source added. 

These signals of a greater cohesion between the U.S., the other four members of the ‘Five Eyes’ security alliance (the U.K., Australia, New Zealand, and Canada), the E.U., and allies in the East, to act in concert continue to isolate Russia and any country that meaningfully enables it, is likely to see the China-Russia relationship increasingly limited, and favouring Beijing, not Moscow, highlighted the E.U. source. “China wants oil and gas from Russia, which it will continue to get,” he said. “It also wants the yuan to be the key trade currency between the two, which Russia has also now agreed, despite previously wanting a joint rouble-yuan basket structure,” he added. “And China wants the latest military and space technology from Russia, which Moscow had been unwilling to share up until recently, but now it is cooperating with that as well,” he underlined. “Russia, on the other hand, is going to increasingly find that all it gets back from Beijing is money for the oil and gas it supplies, which the U.S. and E.U. is happy enough with for the moment, as it continues to take the edge out of global energy prices,” he concluded.

By Simon Watkins for Oilprice.com


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Leave a comment
  • Myron Gasiorowski on June 17 2024 said:
    The U.S. spends a lot more money in the military sphere, but most of it is waste. High price tags for junk that does not work as hyped. And, lots of bells and whistles that that don't get the job done. The military industrial complex in the the U.S. is for profit for the "defense" contractors, a corrupt bunch only interested in profits for themselves. Russia can produce weapons that work for a fraction of the cost that the U.S. spends on unneeded and burdensome sophistication. Hitler thought he could win the war on high tech weapons, but Russia defeated Germany using their brains with good tech and smart tech solutions.
  • Marty on June 17 2024 said:
    Did you just write a new book?
  • George Doolittle on June 18 2024 said:
    The problem for China and now Russia even more is the dramatic change in "energy politics as a weapon." Oddly enough it has been Chinese help in creating pure play BEV here in the USA and Shanghai through both Tesla of course but so much more now as well suddenly both China and Russia seem to be being consumed by hyperinflation granted for different reasons.
  • Mamdouh Salameh on June 18 2024 said:
    Not only do I disagree with the author on the gist and conclusions of his article but I also find his views erroneous, wishful thinking and pipe dreams for the following reasons.

    1- Far from beginning to crumble, China's strategic alliance with Russia has no limits and is growing from strength to strength as evidenced by the exponential growth of trade between them rising from $11.0 bn in 2013 to $240 bn in 2023 and projected to hit $300 bn in 2024. What is hugely significant is that the trade between them is being conducted in their national currencies.

    2- Russia is an equal partner to China in the strategic alliance between them, the BRICS group and the Shanghai Cooperation Organization (SCO). While China's economy is $35 trillion in 2024 or 5.0 times bigger than Russia's at $7.0 trillion according to the World Bank data latest based on purchasing power parity (PPP), this is more than offset by the fact that Russia is the dominant nuclear power, superior in weaponry technologies and a quintessential source of food, energy and technology to China. Moreover, many of the ideas taken by the Chinese-Russian alliances and the BRICS are the brainchild of President Putin such as de-dollarization a new multipolar World Order system and a global financial system to replace the dollar.

    3- And contrary to the author's claim, Russia's economy has this year overtaken Japan's and Germany's economies to become the world's fourth-largest after China, the United States and India according to World Bank data all based on PPP.. Moreover Russia' economy growing this year at 3.2% is the fastest growing economy among all the major economies with the exception of China and India.

    4-Russia has already prevailed on the battlefields of Ukraine as evidenced by lack of any Ukraine counteroffensives even with direct involvement by US-led NATO. Any eventual resolution of the Ukraine conflict will be on President Putin's own terms.

    5-And contrary to the author's claim, China has overtaken the United States in 2013 to become the world's largest economy. China's economy in 2024 based on PPP is $35 trillion compared with the United States' at $28.78 trillion or 22% bigger. This sticks in the craw of the United States.

    6-The World Order's transitioning from a unipolar system led by the United States to a fairer and more equitable multipolar one is unstoppable along with an emerging global financial system away from the dollar both of which being ushered in by China and Russia with support from the BRICS.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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