China reportedly planning to boost economic ties with Russia
Power of Siberia flows booming
The WSJ, citing “policy advisers to Beijing,” reports that Xi plans to increase Chinese imports of Russian commodities such as oil, natural gas, and agriculture, while expanding investment in Russian infrastructure.
With access to Xi heavily circumscribed, and the Chinese inner circle subject to extraordinarily intrusive and omnipresent surveillance, it seems likely that Chinese officials intentionally leaked the story to the WSJ, presumably with Xi’s implicit or explicit blessing.
Russian media are also reporting that Putin and Xi will hold a virtual meeting before the New Year; the PRC Foreign Ministry did not censor these reports nor bat them down at a recent press conference. Why might Beijing be hinting at expanding ties with Moscow, and why now?
Xi’s growing foreign policy and domestic crises may be leading him to draw closer to Putin. Xi has experienced a number of geopolitical setbacks in recent weeks. The CHIPS Act inaugurated a new chapter in longstanding US-China technology competition; this week’s announcement that Japan and the Netherlands would join the US in restricting advanced chipmaking machinery exports to China dealt a further blow to Beijing’s tech ambitions.
Xi’s domestic challenges may be playing an even larger role in shaping his foreign policy calculus. With China’s COVID cases spreading rapidly and threatening to overwhelm Chinese healthcare capacity, especially in the less-vaccinated and older portions of rural China, Xi may be on the verge of his most serious domestic crisis since assuming power in 2012. Facing significant foreign policy and domestic setbacks, but wishing to maintain an assertive international posture and prevent his opponents from exploiting any opening, Xi may believe there is some value in reminding Washington and Brussels of Beijing’s ties with Moscow.
Bilateral natural gas ties are booming
This week saw additional evidence of growing economic ties between Moscow and Beijing. According to Reuters reporting, Gazprom deliveries along the Russia-to-China Power of Siberia-1 pipeline are flowing 16.1% above previously contracted volumes. While China may indeed be short of natural gas, the extra volumes and prices will provide a significant fillip to the Russian budget.
Despite robust natural gas flows along the existing, overland Power of Siberia-1 pipeline, there does not appear to be any public evidence that the two sides will ink a successor pipeline in the near term. The existing pipeline is at real risk of becoming a stranded asset as renewables become more competitive, and a second pipeline would likely face even worse economics. Still, don’t rule out a China-Russia pipeline deal in 2023. With both Beijing and Moscow facing an increasingly unfavorable international environment, the two sides may reach a new pipeline deal due to shared geopolitical interests.
1) China and COVID
Our model shows that China’s covid death toll could be massive – The Economist
But there is enough data available to produce an informed estimate of where things are heading. So we have built a model that calculates the trajectory of China’s outbreak under different scenarios based on estimates of the rates at which people become infected, get sick, recover or die (known as a seir model). The results are shocking. If the virus is allowed to spread unencumbered, we predict that 1.5m Chinese people will die.
China Covid: Health expert predicts three winter waves – BBC
Epidemiologist Wu Zunyou [Chief Epidemiologist China CDC] has said he believes the current spike in infections would run until mid-January, while the second wave would then be triggered by mass travel in January around the week-long Lunar New Year celebrations which begin on 21 January. Millions of people usually travel at this time to spend the holiday with family.
The third surge in cases would run from late February to mid-March as people return to work after the holiday, Dr Wu said.
Beijing funeral homes, crematoriums busy as COVID spreads – Reuters
Hearses bearing the dead lined the driveway to a designated COVID-19 crematorium in the Chinese capital on Saturday while workers at the city's dozen funeral homes were busier than normal, days after China reversed tight pandemic restrictions.
2) Russia and the kinetic war
“A Times investigation based on interviews, intercepts, documents and secret battle plans shows how a “walk in the park” became a catastrophe for Russia.”
…
It was a stark display of Mr. Putin’s preoccupations and revanchist politics. But several people who have known him for decades rejected any notion that he had grown irrational.
“He’s not crazy and he’s not sick,” a person who has known Mr. Putin since the 1990s said. “He’s an absolute dictator who made a wrong decision — a smart dictator who made a wrong decision.”
….
The world has been debating Mr. Putin’s willingness to use a nuclear weapon in Ukraine. People who know him don’t discount the possibility, but they also believe he expects to defeat the West and Ukraine in a long-term, non-nuclear test of wills.
What will Putin do next? – Sergey Radchenko for The Spectator
A year on, there is light at the end of the tunnel. It’s Putin burning down his off-ramp as he prepares for a long, long war.
3) Russia, China, and the energy war
U.S.’ Inflation Reduction Act of 2022 hurts European allies – People’s Daily
The Inflation Reduction Act of 2022 unveiled by the U.S. has drawn strong dissatisfaction from European countries. The Act uses inflation reduction as an excuse, but is actually full of “America First” arrogance and shows that the U.S. is pursuing protectionism.
Analysts pointed out that the Act aims to encourage American and foreign enterprises to move their production bases to U.S. soil and help American enterprises gain competitive advantages in a way that hurts industry in Europe.
The U.S. says Europe is its important ally. However, the country has no qualms about hurting the interests of Europe, which exposes its selfishness.
The Act shows the U.S. is safeguarding its own interests without considering those of other countries, even those of its so-called allies and partners. It is another vivid example of the “America First” route and Washington’s hegemonic mentality.
Comment: There’s strong evidence that China, not the United States, will be the primary beneficiary of any European deindustrialization.
Even when utilizing a conservative methodology, China is an outlier. It spends far more on supporting its industries than any other economy in the study even when excluding China-specific factors. This is true in terms of share of GDP, but the disparity is even more apparent in dollar terms. As a share of GDP, China spends twice as much as South Korea, which is the second-largest relative spender in the sample. In dollar terms, China spends more than twice as much as the United States.
There is more than one front in Europe’s almost 10- month-long war. The first is in the mud, where the worst trenches and dugouts in Eastern Ukraine are starting to bear more than a passing resemblance to scenes from the First World War. The second can be seen from space: Ukraine plunged into darkness from blackouts and assaults on its critical infrastructure as the illuminated cities of Europe glow into the night all around it. The third frontline can be felt in every bank account in Britain: the mounting costs of the economic war between Russia and the West.
Europe’s $1 Trillion Energy Bill Only Marks Start of the Crisis – Bloomberg
High prices could last years and aid is becoming unaffordable
Relief on global gas markets isn’t expected until 2026
4) China and Europe and tech
Germany ups reliance on Huawei for 5G despite security fears –survey – Reuters
Germany has become even more dependent on Huawei for its 5G radio access network equipment (RAN) than in its 4G network despite growing worries about Chinese involvement in critical infrastructure, according to a new report.
Japan to Join US Effort to Tighten Chip Exports to China – Bloomberg
Japan, the Netherlands sought to act in concert on new rules; Curbs will affect chipmaking gear firms ASML, Tokyo Electron
U.S. consults with Japan, Netherlands on chip restrictions as China pushes back – Reuters
The U.S.-China row over technology has ratcheted up this week, with Washington confirming talks with Japan and the Netherlands about tightening exports of semiconductor manufacturing equipment to China, and Beijing hitting back.
China on Monday launched a trade dispute at the World Trade Organization opposing U.S. chip export control measures, while Reuters reported on Tuesday that it is preparing a more than 1 trillion yuan ($143 billion) package to support its domestic chip-making industry.
IBM partners with Japan's Rapidus in bid to manufacture advanced chips – Reuters
IBM Corp and Rapidus, a newly formed chip maker backed by the Japanese government, on Tuesday announced a partnership that aims to manufacture the world's most advanced chips in Japan by the second half of the decade.
Joint Statement Following the Meeting Between President Biden and President Macron – The White House
The United States and France will continue to coordinate on our concerns regarding China’s challenge to the rules-based international order, including respect for human rights, and to work together with China on important global issues like climate change. The Presidents reaffirm the importance of maintaining peace and stability across the Taiwan Strait.
v/r,
Joe Webster
The China-Russia Report is an independent, nonpartisan newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.