Dmitri Medvedev, Russia’s ex-President now serving as the deputy chairman of Russia’s Security Council has met with Chinese President Xi Jinping in Beijing. The meeting was scheduled for Medvedev to take a personal letter from Russian President Putin to Xi. It’s contents were not disclosed but are likely to have included comments on the ‘unipolar vs multipolar’ world leadership issues, handling the United States, the Ukraine conflict, China’s border skirmishes with India, energy supplies, the Shanghai Cooperation Organisation, BRICS development, and overall trade and security.
I discuss these issues as follows:
Unipolar vs. Multipolar Global Leadership
This is an issue close to both Putin and Xi as they have combined to both criticise and change the ‘unipolar’ attitude that the United States effectively runs the world according to its needs and has placed itself above all other nations. Recent examples of this behaviour include US ignoring WTO accords and unilaterally imposing trade sanctions, disconnecting countries from the SWIFT global banking network, the EU leadership apparently taking its cues from Washington, and recent US sanctioned appointments such as the head of NATO being appointed as the Chairman of the International Monetary Fund. On their part, Xi and Putin will be looking at their strategic allies and positions of global importance and influence to create a type of ‘gaming board’ where moves they can coordinate can rebuff the more aggressive of US intentions.
Handling the United States
For China especially, how the US is treating Russia will be regarded as an on-going case study. This includes not just sanctions and military supplies to neighbouring countries and islands, but also AI issues such as the current media war and use of bots (described by the University of Adelaide as the most intense its ever monitored) to influence public opinion, and other issues that Washington could later use to target China. On a bilateral basis, handling Washington will be viewed in the prism of melding diplomatic and political pressures as well as the upcoming US election amongst other political combinations, again with a view to blunting the worst of US political aggression.
Western media have concentrated purely on this issue, suggesting (although Medvedev’s meeting with Xi was private) that China has instructed Russia to end the conflict. In fact, in part China is a beneficiary of the Ukraine situation, which has fast tracked various BRI based supply chains towards China. It has also provided China with an increase in inexpensive energy supplies and removed the competition for energy from Europe. China is also refining and reselling onto other global markets – including the EU. It is therefore an anomaly to view China as being against the conflict, they remain essentially neutral although are concerned about the reasons for its occurrence while at the same time wishing to use it to pursue strategic opportunities. It should be remembered that China will be well aware that US tactics against Russia at present could well be used against it in the future. The Ukraine conflict in some quarters of Beijing will be viewed as a case study for potential US moves against it.
The Chinese State Media did later release a brief statement from Xi’s meeting with Medvedev, saying that “China hopes relevant parties can stay rational and restrained, conduct comprehensive talks, and resolve mutual concerns on security via political methods”.
Moscow will see these as a distraction and will not want an escalation. India is also an increasingly important part of the new Russian sphere of influence in Asia and is developing as a major energy client. Concerns will have reached Xi.
This remains an on-going development issue, with both sides spending billions on ensuring energy security for themselves as well as for regional nations within their sphere. That includes energy security issues throughout Central and South Asia, as well as attempts to bend the EU to some degree of leverage if needed in future. In fact, the EU decision to pick a fight with Russia over energy has highlighted the economies fundamental weakness – the EU’s current strength is built on cheap energy. With EU manufacturing already becoming more expensive and less competitive, both countries will be examining not only global and regional energy supplies, but obtaining leverage over the EU as concerns this, while also looking at where future industrial output can compete with European manufacturing. The latter will be of special attention to Beijing.
In terms of future non-Russian energy supplies, the US has played a dangerous card here in isolating energy rich countries such as Iran, in possession of the world’s fifth largest oil reserves, Venezuela, possessing the world’s largest oil reserves, and upsetting Saudi Arabia, owning the second largest oil reserves and world’s 4th largest gas reserves. There are many others – most of whom are turning to a China-Russia axis rather than a US one. This promises to be a major problem in the future.
The Shanghai Cooperation Organisation
The Shanghai Cooperation Organisation (SCO) is a Eurasian trade and security bloc, originally intended as a vehicle to deal with Afghanistan in the event of a US retreat, which of course happened last year. Full members now include China, India, Iran, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Pakistan and Uzbekistan. Other participating states with various levels of involvement include Afghanistan, Armenia, Azerbaijan, Bahrain, Belarus, Cambodia, Egypt, Kuwait, Maldives, Mongolia, Myanmar, Nepal, Saudi Arabia, Turkiye, Turkmenistan and the UAE. The United States views the SCO as a threat and has stated it believes the SCO will develop as an equivalent to NATO, focusing on the security issues. However, the SCO, while it possesses a security council, is also involved in trade and cultural development. Nevertheless, managing and developing the SCO is a core strategic issue for Russia and China and this will have been part of discussions.
The BRICS – Brazil, Russia, India, China and South Africa – are an informal grouping of countries mainly concentrated on trade development. It is not a Free Trade bloc – yet – although there has been talk of developing into one. More recently, and as direct result of US aggression against Russia, another thirteen countries have applied to join – hedging their bets in case of any US actions against them. These are: Afghanistan, Algeria, Argentina, Egypt, Indonesia, Iran, Kazakhstan, Nicaragua, Nigeria, Saudi Arabia, Senegal, Thailand, and the UAE. If accepted, the new proposed BRICS members would create an entity with a GDP 30% larger than the United States, over 50% of the global population and in control of 60% of global gas reserves. Again, this is of core strategic interest to China and Russia, and the development of BRICS and the structuring of this will have been on the agenda.
Trade & Security
In terms of trade, the overarching issue at present is the development of an alternative payment system to SWIFT. China has its CIPS system, while Russia has SPFS. Developing and rolling out some sort of combined system is a key strategic issue right now – the US denying China access to specific chip technologies is designed to slow this down, although at one point it will occur. Such a system is likely to be taken up by a multitude of countries fearful that the US could cut off their SWIFT connectivity. This effectively means that the United States to some extent has been a loser in the Ukraine conflict – it has diminished its global standing by using SWIFT to punish Russia. The outcome is a lack of trust and eventually the US loss of its global banking and financial transactions oversight.
Other financial mechanisms to avoid financial and economic sanctions, and to assist countries without access to the US dollar (such as debt ridden Sri Lanka) will also be for discussion. Use of currency swaps, sovereign bilateral currency trading (dropping the US dollar and Euro) altogether, and the development of currencies such as the Digital Yuan, Digital Rupee and Digital Ruble are all in use and being further developed. The United States meanwhile is way behind the curve on the development of the Digital Dollar – its introduction is several years away. That will give currencies such as the Digital Yuan, Rupee and Ruble time to develop more of the global share in trade finance – and weaken the US position in global trade.
Also for discussion will have been the INSTC, the Eurasian road, rail and maritime routes that connect points east of the Caspian Sea to China via the Middle Corridor as well as to Russia, the Middle East, East Africa, Central Asia and South Asia. Several Eurasian railway networks have combined to give 20% discounts on regional countries using various rail routes along the INSTC – but not to European users. That will create additional competitive issues for the EU while strengthening Russia and China’s competitiveness in the region, as well as their allies – see the SCO and BRICS above.
As can be seen, Beijing and Moscow are increasingly in alignment in the reorganisation of much of the world order and are becoming increasingly successful at attracting countries to their orbit. While some countries will wish to remain neutral in this, there will be advantages offered to join with the new BRICS / SCO groupings, such as Free Trade Agreements, at a time when Washington and Brussels have been pulling back from these incentives. The US for example pulled out of the CPTPP deal while the EU nixed their China trade deal. In contrast, China and Russia are continuing to offer trade agreements and tariff incentives – and appear to be in the ascendancy. Whatever the situation in Ukraine, the China-Russia axis is developing, fast. The main story to take away from the conflict is exactly this. The conflict is birthing a new world order.
Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates and has a thirty-year investment and business career in China, Russia and Asia. To obtain a complimentary subscription to his updates please click here