In the shadow of the Ukraine crisis, a new geopolitical and economic narrative is unfolding, one that significantly involves China and Russia forging a stronger alliance. This development, underscored by a staggering surge in Sino-Russian trade that has exceeded $200 billion this year, is more than just a reaction to the current geopolitical turmoil. It’s a strategic realignment that is reshaping the global order.
The bustling border town of Heihe stands as a testament to this burgeoning economic relationship. Here, Chinese exports to Russia have dramatically increased, covering a wide spectrum from vehicles to consumer electronics. The tangible signs of this partnership are evident in the recent construction boom along the border, where Chinese workers have erected warehouses and towering office buildings. This infrastructural expansion is not just about facilitating trade; it’s a physical manifestation of a deepening economic and political bond.
The economic windfall for China in this alliance is substantial. As Western sanctions have isolated Russia from Europe and America, China has emerged as a key economic partner. This shift has been particularly beneficial for the Chinese vehicle manufacturing sector. With European automotive giants like Mercedes-Benz and BMW withdrawing from Russia in response to the sanctions, Chinese carmakers have swiftly filled the vacuum. In a striking turnaround, Chinese brands have now seized a majority share of the Russian market, a scenario that was almost unthinkable just a few years ago.
But the implications of this alliance go beyond mere trade statistics. Russia has been supplying China with oil and natural gas at deeply discounted rates, which has been a boon for the Chinese manufacturing sector, especially during times of global energy shortages. While there is no concrete evidence of China directly supplying military equipment to Russia, the sale of dual-use technologies, such as drones and trucks, could indirectly support Russia’s military capabilities.
The leaders of both nations, Xi Jinping of China and Vladimir Putin of Russia, have made several public appearances together, signaling a united front. These interactions are not mere diplomatic formalities but a clear indication of a shared political vision and mutual interests. Both nations, it seems, are intent on challenging Western influence and are finding common ground in their respective aspirations for global repositioning.
One of the most significant aspects of this alliance is the near-complete phase-out of the US dollar in their bilateral trade. Now, over 90% of trade between the two countries is conducted in either the yuan or the ruble. This move towards de-dollarization is a clear indicator of the strategic economic realignment underway, reflecting a broader aspiration within the BRICS nations to reduce their dependency on the US dollar. While the dominance of the dollar in global markets remains largely unchallenged, this shift is indicative of the growing economic confidence and sovereignty aspirations of both China and Russia.
Amidst these developments, China is playing a complex diplomatic game. On one hand, it insists on maintaining its trade relationships with both Europe and Russia, but on the other, this balancing act is becoming increasingly challenging. China’s deepening economic and political ties with Russia, especially in the context of the latter’s international isolation following the invasion of Ukraine, place China in a delicate position.
This leads to intriguing speculation about the role that China may have played in the lead-up to the Ukraine crisis. Could it be that China, foreseeing the potential economic and strategic benefits, encouraged or tacitly supported Russia’s aggressive stance? While there is no direct evidence to support this theory, the timing and subsequent benefits accruing to China from the crisis suggest a potentially well-orchestrated shift in the global power dynamic.
The evolving China-Russia alliance, significantly bolstered by the war in Ukraine, represents more than just an economic partnership; it’s indicative of a strategic realignment with profound implications. As China enjoys the economic benefits and Russia finds a crucial ally, the rest of the world watches with a mix of caution and concern. This new bloc, with its vast economic and political implications, could significantly alter the global geopolitical landscape in the years to come.
We have predicted this with respect to oil and gas as well, it may soon be the case that oil trades at two different prices in a bifurcated market.