China is starting to really regret its friendship with Russia

China is starting to really regret its friendship with Russia

“The biggest surprise for China was that Russia totally misjudged its own power. We thought that Russia would win a war very quickly,” the Chinese expert explained with regret, a few weeks after the invasion.

This was not the official line, which was then in the phase of intense attempts to persuade the global public that Beijing had no idea what was to come. But that reflected Chinese foreign policy thinking better than playing the innocent or repeating ad nauseam that the invasion of Ukraine was the responsibility of the United States and NATO pushing a major power against the wall. One of the main reasons for Beijing’s resistance to such entanglements in the past was not because partners and allies weren’t helpful, but because the countries in question risked dragging China down with their errors. The “Pakistani model”, which China had touted, was precisely conditioned by this experience: Beijing did not want to get stuck defending every Pakistani intervention in Kashmir or inadvertently drawn into a conflict with India, so it confined itself to provide the abilities his friend needed, then stay above the fray. Russia was not the first Chinese partner to believe that they would win a war very quickly and found themselves in a hole, but China was generally not dragged into it with them.

The problem Beijing faced in 2022 was that in crucial areas it was still too early to break with the West. China has remained dependent on the US dollar system. Despite all the speculation about the internationalization of the renminbi, Chinese payment systems and its new digital currency, China was only marginally closer to building a resilient alternative financial architecture than it had been in 2014. The history of the technology was equally problematic: despite the massive push to build its own semiconductor industry, Chinese companies were still painfully dependent on American intellectual property. This left many of its companies exposed if they continued to do business in Russia, like any other sanctioned entity. It was Huawei and ZTE’s sanctions deals in Iran that risked decimating the two companies once the United States had the legal justification to pursue them head-on. Now articles titled “Is Russia the new Huawei?” were emerging, as the US applied the same restrictions of the Foreign Direct Product Rule to the entire Russian tech sector that had been the deathblow for Huawei’s 5G plans in the UK. If you bypass them, these Chinese companies could say goodbye to their advanced semiconductors. The net effect has been that, from banks to telecommunications, most companies that might have wished to take advantage of the newly created vacuum in the Russian market have instead faced even greater limitations on their activities.

Almost as bad for China, the narrative of a divided and declining West was becoming harder to sustain, as its propaganda outlets stopped trying to push it forward. Beijing has been able to make a lot of hay with Trump, COVID, Brexit, the US withdrawal from Afghanistan and many other things in recent years. But now he was faced with a different picture. Sanctions put in place by the US, Europe, Japan and a wide range of other Asian states were not the mush of 2014, but far more potent in their effects – and worryingly replicable also for China. Central bank sanctions have threatened China’s $3 trillion foreign reserve war chest, prompting emergency meetings between Chinese regulators and banks to discuss how to protect Chinese assets in the future. foreigner against comparable measures. The new US-led plurilateral group established on Russian export controls, including countries with more than half of the world’s GDP, could also deny critical components and technologies to China. It was the first such effort on this scale since the entity that did the work during the Cold War – the Coordinating Committee for Multilateral Export Controls, more widely known as COCOM – was withdrawn in favor of a multilateral regime in the process.

Beijing was watching the country that was supposed to be its great strategic asset help bring about precisely the coalitions and instruments of economic warfare it had sought to prevent.

Furthermore, Beijing has seen companies simply write off tens of billions of dollars of assets in Russia as they flee to the exits, going far beyond any formal requirements from Western governments. This undermined one of China’s most important covers: Xi had personally drawn up plans to reinforce the dependence of international companies on China in order to form “a powerful countermeasure and deterrence capability”. against foreigners. This countermeasure and deterrence now seemed much less effective. Polls on international investor sentiment in China, which had been strong at the start of the pandemic, have weakened sharply. The combined effect of investor anxiety about being directly swept away by sanctions on Russia and a reassessment of risk in light of fears that China could have a repeat of the Russian experience -even, was a factor.

As FBI Director Christopher Wray noted in a speech: “There were a lot of western companies that still had their fingers in that door when it slammed. If China invades Taiwan, we could see the same thing again, on a much larger scale. Much like in Russia, Western investments built over years could become hostages, stranded capital, disrupted supply chains and relationships.

Xi’s continued pursuit of a zero-COVID policy, making global supply chains increasingly dysfunctional after two years of strict lockdowns in coastal economic hubs, has had even greater immediacy for corporate results. Almost a quarter of European businesses surveyed in April 2022 said they were now considering relocating completely. As the head of the EU Chamber of Commerce, Jörg Wuttke said:

Western companies are grappling with the scenario that they would have to leave China – just as they are currently leaving Russia – if China tries to forcibly integrate Taiwan. And it doesn’t help, of course, that China is adopting Russia’s aggressive rhetoric. The effect is the same as the COVID policy: foreign companies hit the pause button. New investments are on hold for the time being… The president has entered two dead ends at once: he cannot change his COVID policy, and he cannot change his friendship with Vladimir Putin.

China risk was now assessed differently. The military picture was also troubling for Chinese policymakers. Backed by Western training, weapons and intelligence support, the national will to resist, and a climate of public opinion in the West that viewed the war in starkly black and white terms, Ukraine proved far more resilient. than China had expected, even without NATO military participation. Reading Taiwan was not reassuring: what would already be an extremely difficult military operation for a PLA inexperienced in real war – potentially involving a complex amphibious assault and the intervention of the United States and Japan – now seemed even more intimidating. , especially once the broader strategic context has been taken into account. As a widely circulated analysis paper by a group of influential Chinese think tanks asserts:

The changing nature of war dictates that Putin cannot win in the true sense of the word… War is updated in real time on social media, the impact of war spans from shipping to transportation land to air transport and gradually affects regional trade links; transnational capital withdraws and projects come to a standstill. War is no longer simply a military conflict, but a vast economic war. The issue of territorial boundaries is no longer the most important aspect. Even if Putin wins militarily, he will not win the war.

China’s bet was that the world’s liberal democracies were in decline, incapable of collective mobilization in the face of a common challenge. Instead, Beijing was watching the country that was supposed to be its great strategic asset help bring about precisely the coalitions and instruments of economic warfare it had sought to prevent.

Even for those who wanted to keep a version of globalization alive, it no longer had China at its center.

Western policymakers had failed to dissuade Russia, surprising themselves with the magnitude of the financial measures taken. An economy based on commodity exports could always find buyers as well, which would at least blunt the short-term effectiveness of any effort to place Moscow under restrictive pressure. Yet China could not afford to be optimistic about the consequences for its own situation if liberal democracies delivered a similar response to a future case of Chinese belligerence.

The factors that have made Beijing far more capable as a strategic competitor than Moscow – the breadth, scale and sophistication of its integration into the global economy – have also made it more vulnerable if international banks, insurers , software companies and semiconductor manufacturers suddenly cut it. stopped. Western policymakers and businesses were also beginning to backtrack from some of these worst-case scenarios – which would also be extremely costly for them – to look for ways to mitigate their own vulnerabilities. Re-shoring, near-shoring, friend-shoring, diversification, and a host of other expressions had moved from the periphery into the mainstream and operational business planning. Even for those who wanted to keep a version of globalization alive, it no longer had China at its center. As one European politician observed shortly after the invasion: “Everything we talked about during COVID was still a choice; now it is a necessity.

No Limits: The Inside Story of China’s War with the West copyright © 2022 Andrew Small. Used with permission from Melville House, Brooklyn NY. All rights reserved

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