Russia’s financial meltdown has China’s attention

Russia first; next stop China. If American, British and European multinationals can quit Russia in protest at Vladimir Putin’s murderous assault on Ukraine, should they not also be considering their position in China, which is tarred with much the same autocratic brush as Russia and in some respects carries a similar degree of geopolitical risk?

For Ukraine read Taiwan, and for Russian paranoia about NATO’s eastward expansion, look to Beijing’s ever more aggressive pursuit of its own supposed sphere of influence in the East and South China Seas.

For Xi Jinping , Vladimir Putin’s invasion will have been seen as a way of testing Western resolve, a useful war-gaming of his own designs played out at someone else’s expense.Credit:AP

It is impossible to know for sure whether Putin told China’s Xi Jinping of his intentions when they signed their “no limits” partnership on the eve of the Winter Olympics in Beijing.

The answer is as unknowable as whether the COVID virus emanated from a Wuhan lab. Yet Beijing could see the military build-up on Ukraine’s borders as well as any. It is hard to believe the matter wasn’t even mentioned. Putin would have wanted reassurance that Xi was on side. Xi would in turn no doubt have partially believed Putin’s assurances that the land grab would be a walk in the park.

Yet for Xi, Putin’s adventurism would also have been seen as a way of testing Western resolve, a useful war-gaming of his own designs played out at someone else’s expense. Xi would sit on the sidelines and see how things worked out. You go first, as it were, we’ll be right behind you… not.

That it has plainly not gone according to plan will be giving Beijing plenty of pause for thought. Already there are signs of the alliance with Putin cracking. For the first time, China has begun to refer to the conflict as a “war”; it has cut off supplies of key aviation components, and it has effectively abandoned the currency peg with the rouble, making its goods far more expensive for Russian buyers.

Xi’s virtual summit with France’s Emmanuel Macron and Germany’s Olaf Scholz, in which he condemned the violence, meanwhile gives a glimpse of how the conflict might be brought to a conclusion.

If there is a deal to be done, only Xi, the Kremlin’s supposed ally, can realistically bring Putin to the negotiating table and persuade him to settle. Attempts to broker a deal by Recep Tayyip Erdogan, Turkey’s president, got nowhere. By contrast, Xi could potentially pull it off, should he choose to, and should he succeed would be seen internationally as some kind of hero. Overnight, his position would be transformed from one of complicity in Putin’s war to its peacemaker.

Just as concerning to the Chinese leader as Putin’s failure to bring about a swift victory will be the sight of Western capitalism quitting Russia en masse. For most companies, this is an affordable sacrifice; the damage to reputation from staying put far outweighs the balance sheet cost of quitting. Even so, by doing so they effectively become another arm of Western foreign policy, which is not a place they are at all comfortable with. Their preference is to float agnostically above petty nationalisms and geopolitics. Think global, act local. Yet here they are, shamed finally into picking a side.

Xi knows driving Western multinationals away from China would be costly.Credit:Getty Images

Russia isn’t China, and it is a good sight easier to disengage from the former than it would be the latter. Ultimately, there is little the West wants from Russia beyond hydrocarbons. China is a different matter altogether.

Yet just as Xi will be having pause for thought over his alliance with Putin, so will many Western business leaders about their entanglement with China. If this can happen to Russia, it could happen with China too as the world bifurcates into separate ideologies and systems of governance.

Not that there is as yet much sign of such concern. People have talked of decoupling and deglobalisation ever since Donald Trump became US president in 2017 with a strongly Sinophobic economic agenda, and yet if anything the commercial ties have since grown stronger, not weaker.

American companies have continued vigorously to pursue investment in China, and visa versa, both sides apparently impervious to deteriorating political and diplomatic relations. Talk of global economic decoupling is just that; despite the risks, it is simply not happening.

Nor could it without catastrophic consequence. It has been hard enough imposing meaningful sanctions on Russia; applying something similar to China would bring the entire global economy tumbling down.

As it is, the dream self-sufficiency, free from compromises of the current codependency, is as keenly sought in China as it is in the West. That’s what Xi’s doggedly pursued “dual circulation” economy is all about – not quite the autarky of pre-1979 China, but an economy that is more self-contained and less dependent on international trade.

Yet there is a long way to go, and Xi must carefully weigh the damage to his economy that going all-in with Putin would entail. Globalisation has worked well for China; to drive it away would not be wise.

I’m acutely aware that by making this slightly more optimistic case for continued economic integration, I risk falling into the same trap as Norman Angell, the British writer who argued shortly before the First World War that European nations had become so interconnected by trade as to render war entirely futile, and militarism therefore obsolete.

Despite the lessons of the past, much the same argument was made more recently by the New York Times columnist Thomas Friedman, in his Golden Arches Theory of Conflict Prevention. This posited that no two countries with a McDonald’s in them had ever gone to war. At the time it was true; it soon wasn’t. Globalised brands are no protection against the irrationality of tribalised nationalism. Or against autocrats bent on self-preservation and suppression.

Russia isn’t China, and it is a good sight easier to disengage from the former than it would be the latter. Ultimately, there is little the West wants from Russia beyond hydrocarbons. China is a different matter altogether.

All the same, looking through the horrors of the moment, it’s by no means certain that today’s globalised world is about to end in the same cataclysmic way as it did in 1914, or even that we are heading into some kind of inevitable, bipolar, East/West carve up of the world order.

Predictions become easier when it comes to military spending; after the wake-up call of the past three weeks, more or less everyone will be spending a great deal more. Finding the money is going to be quite a challenge, and will I suspect end up a much bigger story than the deglobalisation everyone has been talking about.

Rewind 40 years to just before the Falklands War, and Britain was still spending about 5 per cent of GDP on the military. Steady declines since then have seen defence spending tumble all the way down to little more than 2 per cent, yielding a massive “peace dividend” that has overwhelmingly been applied to health and welfare.

Making the West safe again will cost money, and it has to come from somewhere. The cost of living squeeze already feels painful enough, but the sacrifices expected of us in defending freedom may have only just begun.

Telegraph, London

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