With Russia, China is big brother

Mark O'Neill November 02, 2023 08:57

When Xi Jinping met Vladimir Putin at the Belt and Road summit in Beijing on October 18, the photograph showed a warm handshake and broad smiles. But the two men are anything but equals.

Russia’s economy is deteriorating because of its invasion of Ukraine in February 2022. According to Forbes magazine, the war has cost Russia US$167 billion, with no economic return. Last week the British Ministry of Defence put the number of Russian dead and seriously injured at 150,00-190,000. That means the government has to pay billions of roubles to the families of the dead and wounded soldiers, as promised in their contracts. In addition, to avoid the draft, 800,000 Russians have fled abroad, many of them the country’s best educated and most highly qualified people.

China’s economy is much bigger than that of Russia’s and the gap is widening.

The war has cost Russia the best customer for its oil and gas – the European Union. Hundreds of western companies have exited the Russian market, closed their factories or left them to be confiscated.

Of the countries that have stepped into this void, China has benefitted the most economically. Bilateral trade this year will exceed a record US$200 billion, up from the previous record of US$190 billion in 2022, when China became Russia’s largest energy customer.

In the first eight months of this year, Russia sold China 75 million tonnes of oil, an increase of 25 per cent over the same period in 2022. Russia has overtaken Saudi Arabia as China’s largest supplier of oil. It buys the oil at a discount, because many markets are closed to Russia.

In the first eight months of this year, China’s exports to Russia increased 63.2 per cent to US$71.8 billion. This was most welcome when demand in many of the country’s export markets is weak.

Imported Chinese cars accounted for 49 per cent of Russia's market in June, compared with a pre-war share of just seven per cent in June 2021, according to data from analytics firm Autostat. In the first three quarters of this year, Chinese exports of passenger cars to Russia increased more than six-fold to 640,000, according to Chinese figures.

In addition, Chinese auto firms are increasing their sales in Russia with vehicle assembly at factories vacated by foreign firms like Renault and Nissan. Six factories in Russia formerly owned by European, Japanese and U.S. carmakers which assembled their vehicles are now producing Chinese models or have plans to do so.

Of the 10 top brands by market share in Russia, six are Chinese – including Haval, Chery and Geely.

In 2022, China sold more than US$500 million worth of semiconductors to Russia, up from US$200 million in 2021.

China now accounts for around half of Russia’s imports, up from one-quarter before the war, according to estimates from the Bank of Finland’s Institute for Emerging Economies.

Beijing has angered the West by not condemning Russia’s invasion. But it has said repeatedly it has not supplied arms to Russia’s war effort. According to Russian customs data, China has exported drones, helmets, vests, radios, vehicles and construction equipment – all dual-use items that can be used by the military.

Another plus for Beijing is that the yuan is widely used in Russia as payment for this booming trade, by individuals and by companies. China wants to increase the international use of its currency.

At the Beijing meeting, Putin was delighted to receive the political and diplomatic support of President Xi. It was his first major trip outside Russia since the International Criminal Court in March issued a warrant for his arrest for the mass abduction of Ukrainian children.

In his speech, Putin outlined many projects on which Russia and China could co-operate. But nothing was agreed or signed during his visit – including the Power of Siberia-2 pipeline that would deliver gas to China to replace the markets Russia had lost in Europe nor new railways from Siberia to China. Evidently, Russia needs China much more than the other way around.

In October, the Russian government said it aimed to spend a staggering 10.8 trillion roubles (US$108 billion) on defence in 2024, three times the amount allocated in 2021, the year before the invasion.

Russia’s budget for 2024 will take defence spending to six per cent of gross domestic product, exceeding social welfare for the first time.

If Russians knew the real toll of dead and wounded and the financial cost, they would ask: what is the purpose of the war? Its economy is already smaller than those of Canada and Italy, countries with a fraction of its population. Putin’s war is driving their country into poverty and unimaginable human suffering.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.