China Is Starting to Really Regret Its Friendship With Russia

“The biggest surprise for China is that Russia completely misjudged its power. We think Russia will win a war very quickly,” the Chinese expert explained sadly a few weeks after the invasion. It was not an official statement, at the time during a period of intense efforts to convince a global audience that Beijing did not know what was coming. But it better reflects China’s foreign policy thinking than feigning innocence or repeating the nauseous feeling that the invasion of Ukraine was the responsibility of the United States and NATO to push a great power to its feet. wall. One of the main reasons behind Beijing’s resistance to such entanglements in the past is not because of unhelpful partners and allies but because the countries in question risk dragging China down. down with their mistakes. The “Pakistan model” that China is touting is facilitated precisely by this experience: Beijing does not want to have trouble defending any Pakistani intervention in Kashmir or inadvertently being drawn into a conflict with India, so they limit themselves to providing capabilities. Its you essential and then stand above the competition. Russia is not the first partner of China to believe it will win a war very quickly and find itself in a deep pit, but China is not usually drawn into that war with them.

The problem that Beijing faces in 2022 is that in key areas, it is still too early to break with the West. China is still dependent on the US dollar system. For all the speculation about the internationalization of the renminbi, China’s payment system, and its new digital currency, China is barely getting any closer to building a financial structure. flexible alternative to 2014. The tech story is equally problematic: despite massive efforts to build their own semiconductor industry, Chinese companies are still heavily dependent on assets. intelligence of the United States. This leaves many of their companies exposed if they continue to do business in Russia, just like any other sanctioned entity. It is the sanctions-breaking agreements of Huawei and ZTE in Iran that threaten to destroy these two companies once the US has a legal reason to go after them with full force. Now the articles are titled “Is Russia the new Huawei?” is emerging, as the US applies similar Foreign Direct Products Rule restrictions to the entire Russian tech sector, which is the final blow to Huawei’s 5G plans in the UK. . Break them down, and those Chinese companies can say goodbye to their cutting-edge semiconductors. The end result is that from banking to telecommunications, most companies may wish to take advantage of the newly opened gap in the Russian market rather than facing even greater restrictions on their operations. their.

Almost as bad for China, the narrative of a divided and decaying West is becoming harder to sustain, to the point where its propaganda agencies have stopped trying to promote it. Beijing has been able to make a lot of money with Trump, COVID, Brexit, the US withdrawal from Afghanistan and many other issues in recent years. But now it faces a different picture. Sanctions imposed by the United States, Europe, Japan, and a host of other sane countries in Asia are not the slush of 2014 but their effects are far more powerful—and they are. could be unsettlingly repeated for China. Central bank sanctions threaten China’s $3 trillion worth of foreign exchange reserves, prompting Chinese regulators and banks to hold an emergency meeting to discuss how to protect its assets. overseas assets of China from similar measures. The new US-led multilateral grouping formed on the basis of Russia’s export controls, includes countries that hold more than half of the world’s GDP, which can also reject components and technologies. important to China. This is the first such effort of this scale since the entity that did this work during the Cold War – the Coordinating Committee for Multilateral Export Control, more widely known as COCOM – was discontinued. work in favor of a later multilateral regime.

Beijing is spying on what is believed to be its major strategic asset to help bring about precisely the alliances and tools of economic warfare it has sought to prevent.

In addition, Beijing has been tracking companies that simply erased tens of billions of dollars of assets in Russia as they fled, far beyond any official request by Western governments. It undercut one of China’s most important barriers: Xi Jinping personally outlined a plan to tighten international companies’ dependence on China to form “a strong countermeasure.” strength and deterrence against foreigners”. That countermeasure and deterrence now look a lot less effective. Surveys of international investor sentiment in China, which had been sustained in the early stages of the pandemic, have severely weakened. The combined effect of investors’ anxiety about getting caught up in Russia’s direct sanctions and risk re-pricing due to fears that China could repeat Russia’s own experience, is that a factor.

As FBI Director, Christopher Wray, noted in a statement: “There are a lot of Western companies that still have their fingers on that door when it slams shut. If China invades Taiwan, we could see the same thing again, on a much larger scale. Just like in Russia, Western investments built over many years can become hostages, capital trapped, supply chains and relationships broken.”

Xi’s continued pursuit of a COVID-free policy, which has made global supply chains increasingly inefficient after two years of strict lockdowns in coastal economic hubs, has even had a major direct impact. more on corporate profits. Nearly a quarter of European companies surveyed in April 2022 said they were now considering moving out altogether. As the head of the EU Chamber of Commerce there, Jörg Wuttke, said:

Western companies are grappling with the scenario that they will have to leave China – just as they are currently leaving Russia – if China tries to unite Taiwan by force. And of course, it doesn’t help that China adopts Russia’s belligerent rhetoric. The effect is the same as from the COVID policy: foreign companies are pressing the pause button. New investments are currently on hold… The President has put himself in two dead ends at once: He can’t change his COVID policy, and he can’t change anything about it. his friendship with Vladimir Putin.

The China risk is now priced differently. The military picture is also troubling for Chinese policymakers. Backed by Western training, weapons and intelligence, the will to resist at home, and the atmosphere in which Western public opinion viewed the war in black and white terms, Ukraine proved resilient. far more than China anticipated, even without direct intervention. NATO’s military involvement. Knowing Taiwan is not reassuring: a military campaign that is already extremely difficult for a PLA inexperienced in real war—potentially involving a complex amphibious assault, and the intervention of both the United States and Japan—even more frightening now, especially when the broader strategic context is taken into account. As a widely circulated analytical paper by a group of influential Chinese thinkers argues:

The changing nature of war makes it impossible for Putin to win in the truest sense of the word… The war is being updated in real time on social media, the impact of the war is expanding from the sea to the ocean. land to air transport and gradually affect regional trade links; Transnational capital is being withdrawn and projects are stalling. War is no longer merely a military conflict but a vast economic war. The issue of territorial borders is no longer the most important aspect. Even if Putin wins militarily, he won’t win the war.

China’s bet is that the world’s liberal democracies are in decline, incapable of collective mobilization in the face of a common challenge. Instead, Beijing is spying on what is believed to be its major strategic asset to help bring about precisely the alliances and tools of economic warfare it has sought to prevent.

Even for those who want to maintain some version of globalization, China is no longer the centerpiece.

Western policymakers have failed to deter Russia, even marveling at the scale of the financial measures taken. An economy based on commodity exports can also always find buyers, at least reducing the short-term effectiveness of any attempt to put Moscow under a tight squeeze. However, China cannot be optimistic about the consequences for its own situation if liberal democracies offer a similar response to China’s belligerence in the future.

The factors that make Beijing more likely to become a strategic competitor than Moscow — the breadth, size and complexity of its integration into the global economy — also make Beijing more vulnerable. would be more vulnerable if international banks, insurance companies, software companies and semiconductor manufacturers suddenly cut back. Turn off. Western policymakers and companies are also starting to work against some of these worst-case scenarios—which will also be incredibly costly for them—to look at how to minimize the points. their own weakness. Re-shoring, near-shoring, friend-shoring, diversification, and a host of other phrases have moved from the fringes to the mainstream and into the corporate agenda. Even for those who want to maintain some version of globalization, China is no longer the centerpiece. As one European policymaker remarked shortly after the invasion: “Everything we’ve said about jobs during COVID remains a choice; Now it is a necessity.”

Unlimited: The Inside Story of China’s War with the West copyright © 2022 Andrew Small. Used with permission of Melville House, Brooklyn NY. All rights reserved

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