The war in Ukraine: A weakened Russia is China’s windfall
(This piece is much longer than most articles on newspaper websites. It first appeared on Ng Weng Hoong's blog site: https://wengcouver.substack.
Taiwan can wait. So too, the South China Sea and Central Asia.
China could be looking at a much bigger, unexpected prize in the wake of Russian President Vladimir Putin’s disastrous decision to invade Ukraine on February 24.
While politicians and analysts worry that China might take advantage of the Ukraine war to seize Taiwan, they should consider Beijing’s potential windfall from the geopolitical and economic collapse of its closest international partner.
Already, China has been served up a rich offering of Russia’s distressed companies and trade-sanctioned oil, gas, coal, gold, industrial metals, and food commodities suddenly made illegal to most other countries on world markets.
At a time of record food prices, US$100 oil, and raging global inflation, China has been gifted access to this bounty of discounted resources, courtesy of Russia’s self-inflicted crisis and the unprecedented level of sanctions imposed on its economy by the West. (India, the other major beneficiary, has already picked up a cargo of Russia’s Urals crude at a discount of 20 percent in defiance of Western sentiments and sanctions).
The Russians are also pumping hard cash into China’s slowing economy. Cut off from the global banking system, desperate Russian companies and individuals are rushing to open accounts with Chinese financial institutions. The capital flight and transfer of wealth from Russia into the world’s second-largest economy are likely to be substantial and possibly sustained.
But why stop at appetizers?
China’s long game
On the horizon are the prospects for China to try “reclaim” disputed vast resource-rich territories from a crumbling Russia, expand its regional influence at Moscow’s expense, repair frayed ties (on its own terms) with the West, and even reshape the global financial system by establishing new mechanisms to blunt the economic and financial threats of U.S. sanctions. These are far better than anything Beijing could have imagined just weeks ago.
The longer the war drags on, the greater Beijing’s influence will likely be on the world stage. China’s role as a mediator will eventually come into focus given its position as the only major power now with friendly access to an isolated nuclear-armed Russia. As feared by the United States and the European Union, China will not rule out helping Russia, especially if Moscow needs fresh supplies of weaponry and other essentials to ward off defeat on the battlefield.
At the same time, Beijing will want to limit the damage, specifically to prevent Putin resorting to nuclear, chemical, or biological warfare to claim any sort of victory.
China will not want a Russia vanquished by the West nor one emboldened by victory in Ukraine.
In Beijing’s calculus, a protracted, stalemated conflict will weaken Russia, paralyze Europe, lock down the North Atlantic Treaty Organization (NATO), and expose America’s lack of options and confidence while enhancing its leverage against both Moscow and the West.
Two decades ago, U.S. president George W. Bush committed a far bigger act of madness than Putin when he ordered the illegal invasions of Afghanistan (2001) and Iraq (2003) on the principle of “the pre-emptive strike”.
“We must take the battle to the enemy, disrupt his plans and confront the worst threats before they emerge. In the world we have entered, the only path to safety is the path of action. And this nation will act,” he declared in a speech that laid out one of America’s worst foreign policy doctrines. “Shoot first, talk later” ended up hobbling the U.S. at the start of the 21st century.
Bush took “the battle to the enemy” in Iraq by fabricating evidence to start a war. Falsely accusing Iraq’s dictator, Saddam Hussein, of developing weapons of mass destruction, the U.S. launched a “shock and awe” invasion of the country, killed, injured, and displaced tens of millions of civilians in the Middle East, and further destabilized the region.
The hunt for Osama bin Laden led the U.S. into its longest war and a failed 20-year occupation of Afghanistan. The U.S. and its leaders have never been held to account for their alleged war crimes in those countries and elsewhere, and during their continuing unilateral war on terror around the world. They have also been let off the hook for their wars’ massive economic and reputational damage to the U.S.
America’s forever wars failed to stamp out terrorism and did not bring peace to the Middle East or the world, but they greatly benefited China. Probably more than any U.S. policies since the establishment of diplomatic ties between the two countries, the Bush pre-emptive strike response to the 9/11 attacks helped China’s rise the most.
With the U.S. quaqmired in conflict and burdened by military expenditures, China focused on its economy and sold itself as a benign superpower that would bring peace and prosperity to the world. China had a good 15 years to do both, from the time of the 9/11 attacks in 2001 to 2016 when Donald Trump was elected president that began America’s focus on China as its biggest threat.
A protracted Ukraine war could be China’s opportunity to sidestep this latest challenge to resume its rise.
Just as the U.S.’s global war on terror preoccupied the Bush and Obama presidencies, China will want the conflict to bog down the Biden administration on European soil. If it turns into a dangerous stalemate, the U.S. and NATO will struggle to effect their intended pivot to Asia.
As with Bush, Putin badly miscalculated his pre-emptive strike. Not everyone is buying his argument that Russia had to go to war to stop Ukraine joining NATO, weed out Nazis, or prevent the U.S. developing bioweapons. But the most important truth of all is that Russia has failed to subdue Ukraine, leaving itself and Europe in a suspended state of terror.
China has made its first move by distancing itself from Russia’s mistake while refusing to criticize Putin. Instead, Beijing blames it all on the U.S. and NATO for having forced Putin’s hand and turning naïve, helpless Ukraine into bear bait.
In positioning itself as the neutral party, Beijing has an eye on a long-term role to reshape the geopolitics of the Europe-Asia land mass, and the global security order.
The burden of Russia
In an advertent way, a paper written on March 5 by a prominent political scientist linked to China’s powerful State Council has helped set the stage for a discussion of this scenario.
Hu Wei, the vice-chairman of the Public Policy Research Centre of the Counsellor’s Office of the State Council, is of the view that Russia is doomed to economic collapse and political disintegration from Putin’s failed war.
In telling Beijing to immediately dump Putin and start rebuilding ties with the West, Hu is swimming against mainstream China and President Xi Jinping’s foreign policy.
Hu calls for “unloading the burden of Russia as soon as possible” so that China can begin “safeguarding its own best interests”.
Hu, who is also the chairman of the Shanghai Public Policy Research Association, warns: “The power of the West will grow significantly, NATO will continue to expand, and U.S. influence in the non-Western world will increase.”
“China will become more isolated,” he wrote, according to a translation of his paper published by the U.S.-China Perception Monitor (USCNPM) on March 12. The online publication is produced by the Carter Center founded by former U.S. president Jimmy Carter.
Hu’s commentary drew praise from western observers.
James Palmer, the Chinese-fluent deputy editor at Foreign Policy magazine, was effusive, tweeting that Hu gave a “moral argument” and a “cogent, accurate take…on what China should do,” although it won’t.
The astute Italian sinologist Francesco Sisci sees in Hu’s paper signs that Beijing is having “second thoughts” about its fervent support for Moscow.
Agreeing with Hu, Sisci wrote: “China comes out of this crisis more isolated and defeated in its cultural assumptions that guided the political choices in the last 15 to 20 years. Russia is not a strategic superpower, America is not in decline, Europe follows America, and Asia sees the confirmation of American global leadership, strengthening its anti-Chinese determination.”
Tanner Greer, a Taiwan-based researcher, opined sympathetically that Hu could be “a closet liberal who is grasping for any argument he thinks might bring some balance to U.S.-China relations”.
Predictably, Hu’s paper was met with mostly negative reviews in China as public opinion is strongly anti-U.S.
The minority who agree with him fear the war would inflict “moral, political and economic costs” not just on Russia, but also China, according to the New York Times. If Russia falls, the U.S. and NATO will target China next.
Hu’s critics are clearly more powerful than his supporters as Chinese censors quickly blocked the website of the Atlanta-based Carter Center that exclusively carried his paper.
The wolf-warrior tweeter, Duke of Qin, who often reflects China’s hardliners, contemptuously linked Hu to “pseudo intellectual court eunuchs who serve America.”
Duke made a revealing comment that “it should be Chinese policy to encourage escalation” as a “Russian NATO nuclear exchange” would benefit China.
Using a popular Chinese phrase, “murder with a borrowed sword”, the Duke wants China to wield Russia as a weapon to attack NATO. In one fell swoop, China would reduce the power of both players without itself lifting a finger.
But Putin is Xi’s “best friend”. Since taking office in 2012, Xi has been steering China away from the West toward Russia. The Russia-China partnership today has “no limits”, according to an official declaration issued just weeks before the start of the Ukraine war.
Why would China want to set up its best friend for “murder” and to be punished given that they are both vehemently opposed to the West?
Part of the answer lies in China’s unresolved anger against Russia for historical wrongs. This is hardly surprising given Xi’s policy of stoking nationalist anger against foreign powers that colonized China during the ‘Century of Humiliation’ starting 1839. Japan is often the target with the U.S. coming into focus recently, but Russia has a far longer record of colonial aggression and pillage against China.
Russia has been spared the worst of Chinese nationalistic attacks only because Moscow shares Beijing’s antipathy towards the West. The current warm phase between the two sides is actually an anomaly in modern Russia-China relations.
The two countries have a rich history of mutual animosity and conflict against each other going back centuries. The two peoples do not have a shared language or culture that would facilitate communications, made worse by ingrained mutual racial distrust and prejudice.
In 1900, the Russian Cossacks executed a racist pogrom that killed an estimated 5,000 Chinese civilians in the Amur River territory of Blagoveshchensk. The same year, Russia was part of an eight-nation alliance that violently put down the anticolonial Boxer Rebellion in Beijing.
In 1917, China’s Beiyang government fought alongside Allied forces against the eventually victorious Soviet communists in the Russian civil war. The Soviets returned the favour by supporting the Chinese Communist Party against the Kuomintang during China’s civil war from 1927 to 1949.
From 1958, personal and ideological differences between communist China’s founder Mao Zedong and Soviet communist party first secretary Nikita Khrushchev plunged the two countries into conflict that outlasted the two leaders and continued for the next three decades. In 1969, tensions boiled over when the two countries fought an undeclared seven-month war against each other in Manchuria.
Even today, tensions between Beijing and Moscow persist to put a limit on their friendship despite the public lovefest. Russia has grown suspicious of China’s rising influence in Central Asia and ambitions for the Arctic. China is wary of Russia’s increasing military ties with India at a time of worsening relations between Beijing and New Delhi. Despite its refusal to criticize Russia, China has misgivings against Putin for attacking Ukraine which was becoming an important destination for Chinese trade and investment.
The prize of Russia
China’s hardliners have another and more pragmatic reason to wish for a sustained conflict in Ukraine and a long-term standoff between Russia and NATO.
It opens up the possibility for China to reclaim large swaths of the resource-rich northern far eastern region of Russia that were taken from the declining Qing Dynasty in the 19th century.
One of the crown jewels is the sparsely-populated Sakhalin Island that is rich in oil, gas, gold, coal, timber, and fisheries. More recently, the island has become a major producer and exporter of high-value liquefied natural gas (LNG).
About 1,100 kilometres to the southwest of Sakhalin Island is the strategic port city of Vladivostok in the Primorsky Krai region that used to be Chinese territory. In July 2020, China was bitterly reminded of its loss when Russia celebrated the 160th anniversary of the region’s annexation.
Chinese journalists and citizens protested online that Haishenwai Port belongs to China despite the Russian having acquired it through two treaties forced upon the Qing rulers in 1858 and 1860.
Siberia is another source of latent anti-Russia sentiments for Chinese nationalists. Siberia, about three-quarters of Russia’s land mass, was carved out from Qing’s China in the Convention of Peking in 1860. In a 2014 article for the New York Times, writer Frank Jacobs predicted that China will reclaim “the Asian part of Russia”.
Russians live in constant fear that the much larger Chinese population will one day march across the border to take over the mostly desolate Far Eastern region that holds much of the country’s vast reserves of untapped natural resources.
The Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan are expected to move closer to China as the Russian economy falters under the weight of war and sanctions. With some of the world’s largest oil and gas reserves, the region is also a vital land link between China, Russia, and the Europe-Asia land mass.
In January, Russia crushed a potential revolution in Kazakhstan, the region’s largest country and economy, with China largely on the sidelines. All three suggested the U.S. was behind the unrest that began as a protest against the rising cost of living. China can be expected to assert its influence to prevent the region from drifting towards the West.
The Arctic is the new prize that China has been coveting despite Russia’s unease. Russia, the U.S., Canada, Norway, Denmark, Sweden, Finland, and Iceland have the front-row seats through their membership in the Arctic Council. To their consternation, Beijing last year unveiled its strategy for developing a ‘Polar Silk Road’ under its current five-year economic plan to 2025.
China wants to open up new freight routes linking Asia and Europe via the northeast, northwest, and central passages of the Arctic. A weakened Russia will be receptive to China’s involvement to keep the Arctic from being dominated by the U.S.
The unintended consequences
Within the West, there is growing concern that the trade and financial sanctions taken against Russia have started to hurt the rest of the world. The sudden loss of Russian energy and commodity supplies has added to the global inflationary surge caused by years of loose monetary policies.
Among the latest measures taken, the U.S. Treasury Department has banned Americans from buying Russia’s massive stockpile of 2,300 tonnes of gold, said to be the fifth-largest in the world. While gold is not an energy or edible commodity, it can be used by Russia as collateral to support trade to evade sanctions.
In the past, traders have successfully evaded U.S. sanctions to move Iranian and Iraqi oil. Given the range and size of Russia’s commodity reserves and the demand from developing economies like China, India, Saudi Arabia, Iran, and those in Southeast Asia, Africa, and Latin America, it is only a matter of time before traders develop an alternative system to make and settle payments without using U.S.-controlled global financial and payment services.
The U.S. should be concerned about the potential rise of a China-led trading bloc that will bypass or limit the use of the dollar and limit the participation of the West. The world’s second-largest economy may lack the sophistication of the U.S. but it has sufficient clout with other non-western economies to operate their own trading network.
Already, in the last few weeks, traders have found ways to move Russian oil in an underground network.
According to the U.S. trade publication Energy Intelligence, “anonymous buyers have emerged to snap up distressed Russian crude oil cargoes. This has served to disguise the trade, cloaking the final destinations, prices and ultimate end-users of the oil. More drastic changes are afoot that could make tracking Russia’s oil trade more difficult, adding greater uncertainty and volatility to markets.”
India and Russia could soon be using rupees and rubles to finance their bilateral trade as they seek to bypass the barriers brought on by U.S. sanctions, according to an AsiaTimes report citing CNBC.
The most ambitious move yet is being attempted by China and Saudi Arabia who are in talks to use the yuan instead of the dollar to price Saudi oil sales to the Chinese, according to the Wall Street Journal.
This is not a new idea, but the massive damage done to the Russian economy by Western sanctions is the most serious wake-up call to countries that resent U.S. financial power. The fear of being similarly sanctioned has hastened the world’s second-largest oil consumer and its second-largest oil producer to consider a trial. Saudi Arabia exports about 1.8 million barrels per day of crude to China to account for about 12 percent of the Asian country’s 15 million barrels per day consumption. Like China, Saudi Arabia resents what it sees is the intrusive imperial power of the U.S.
It remains to be seen if these anything-but-the-dollar proposals will take off. If they succeed, a major pillar of U.S. power will be shaken. The sanctions’ ultimate impact would be to weaken both Russia and the U.S.
With all these possibilities up for grabs, how important is Taiwan now on China’s list of priorities?