Shanghai to Sevastopol
President's XI and Putin have locked Eurasia, Swift payments slowing, Australia in the cold, China drives global growth
UPDATE: What has just taken place in Moscow is nothing less than a new Yalta, which, incidentally, is in Crimea. But unlike the momentous meeting of US President Franklin Roosevelt, Soviet Leader Joseph Stalin, and British Prime Minister Winston Churchill in USSR-run Crimea in 1945, this is the first time in arguably five centuries that no political leader from the west is setting the global agenda.
The intensification of the utilization of SWIFT as economic weapon in the context of Western sanctions against Russia increases concerns by third parties about the future of global cross-border payment infrastructures.
China firmly believes that the US is engaged in an international effort to contain it. China’s response then is to build a ‘Great Wall of steel’ to protect itself, in other words become more self-reliant. China had clearly begun to play seriously in the US global space – avoiding confrontation while demonstrating initiative and capacity to effect outcomes.
China’s 2023 “two sessions” and the government work report contained language that upgraded the importance of attracting foreign investment. There were also pledges to open markets wider, especially in services, and to improve the business environment, with an emphasis on legal and regulatory reforms to promote fair competition and better protect foreign investment.
In Moscow, Xi and Putin bury Pax Americana
By Pepe Escobar Columnist at The Cradle, editor-at-large at Asia Times
In Moscow this week, the Chinese and Russian leaders revealed their joint commitment to redesign the global order, an undertaking that has 'not been seen in 100 years.'
What has just taken place in Moscow is nothing less than a new Yalta, which, incidentally, is in Crimea. But unlike the momentous meeting of US President Franklin Roosevelt, Soviet Leader Joseph Stalin, and British Prime Minister Winston Churchill in USSR-run Crimea in 1945, this is the first time in arguably five centuries that no political leader from the west is setting the global agenda.
It’s Chinese President Xi Jinping and Russian President Vladimir Putin that are now running the multilateral, multipolar show. Western exceptionalists may deploy their crybaby routines as much as they want: nothing will change the spectacular optics, and the underlying substance of this developing world order, especially for the Global South.
What Xi and Putin are setting out to do was explained in detail before their summit, in two Op-Eds penned by the presidents themselves. Like a highly-synchronized Russian ballet, Putin’s vision was laid out in the People’s Daily in China, focusing on a “future-bound partnership,” while Xi’s was published in the Russian Gazette and the RIA Novosti website, focusing on a new chapter in cooperation and common development.
Right from the start of the summit, the speeches by both Xi and Putin drove the NATO crowd into a hysterical frenzy of anger and envy: Russian Foreign Ministry Spokeswoman Maria Zakharova perfectly captured the mood when she remarked that the west was “foaming at the mouth.”
The front page of the Russian Gazette on Monday was iconic: Putin touring Nazi-free Mariupol, chatting with residents, side by side with Xi’s Op-Ed. That was, in a nutshell, Moscow’s terse response to Washington’s MQ-9 Reaper stunt and the International Criminal Court (ICC) kangaroo court shenanigans. “Foam at the mouth” as much as you like; NATO is in the process of being thoroughly humiliated in Ukraine.
During their first “informal” meeting, Xi and Putin talked for no less than four and a half hours. At the end, Putin personally escorted Xi to his limo. This conversation was the real deal: mapping out the lineaments of multipolarity – which starts with a solution for Ukraine.
Predictably, there were very few leaks from the sherpas, but there was quite a significant one on their “in-depth exchange” on Ukraine. Putin politely stressed he respects China’s position – expressed in Beijing’s 12-point conflict resolution plan, which has been completely rejected by Washington. But the Russian position remains ironclad: demilitarization, Ukrainian neutrality, and enshrining the new facts on the ground.
In parallel, the Russian Foreign Ministry completely ruled out a role for the US, UK, France, and Germany in future Ukraine negotiations: they are not considered neutral mediators.
A multipolar patchwork quilt
The next day was all about business: everything from energy and “military-technical” cooperation to improving the efficacy of trade and economic corridors running through Eurasia.
Russia already ranks first as a natural gas supplier to China – surpassing Turkmenistan and Qatar – most of it via the 3,000 km Power of Siberia pipeline that runs from Siberia to China’s northeastern Heilongjiang province, launched in December 2019. Negotiations on the Power of Siberia II pipeline via Mongolia are advancing fast.
Sino-Russian cooperation in high-tech will go through the roof: 79 projects at over $165 billion. Everything from liquified natural gas (LNG) to aircraft construction, machine tool construction, space research, agro-industry, and upgraded economic corridors.
The Chinese president explicitly said he wants to link the New Silk Road projects to the Eurasia Economic Union (EAEU). This BRI-EAEU interpolation is a natural evolution. China has already signed an economic cooperation deal with the EAEU. Russian macroeconomic uber-strategist Sergey Glazyev’s ideas are finally bearing fruit.
And last but not least, there will be a new drive towards mutual settlements in national currencies – and between Asia and Africa, and Latin America. For all practical purposes, Putin endorsed the role of the Chinese yuan as the new trade currency of choice while the complex discussions on a new reserve currencybacked by gold and/or commodities proceed.
This joint economic/business offensive ties in with the concerted Russia-China diplomatic offensive to remake vast swathes of West Asia and Africa.
Chinese diplomacy works like the matryoshka (Russian stacking dolls) in terms of delivering subtle messages. It’s far from coincidental that Xi’s trip to Moscow exactly coincides with the 20th anniversary of American ‘Shock and Awe’ and the illegal invasion, occupation, and destruction of Iraq.
In parallel, over 40 delegations from Africa arrived in Moscow a day before Xi to take part in a “Russia-Africa in the Multipolar World” parliamentary conference – a run-up to the second Russia-Africa summit next July.
The area surrounding the Duma looked just like the old Non-Aligned Movement (NAM) days when most of Africa kept very close anti-imperialist relations with the USSR.
Putin chose this exact moment to write off more than $20 billion in African debt.
In West Asia, Russia-China are acting totally in synch. West Asia. The Saudi-Iran rapprochement was actually jump-started by Russia in Baghdad and Oman: it was these negotiations that led to the signing of the deal in Beijing. Moscow is also coordinating the Syria-Turkiye rapprochement discussions. Russian diplomacy with Iran – now under strategic partnership status – is kept on a separate track.
Diplomatic sources confirm that Chinese intelligence, via its own investigations, is now fully assured of Putin’s vast popularity across Russia, and even within the country’s political elites. That means conspiracies of the regime-change variety are out of the question. This was fundamental for Xi and the Zhongnanhai’s (China’s central HQ for party and state officials) decision to “bet” on Putin as a trusted partner in the coming years, considering he may run and win the next presidential elections. China is always about continuity.
So the Xi-Putin summit definitively sealed China-Russia as comprehensive strategic partners for the long haul, committed to developing serious geopolitical and geoeconomic competition with declining western hegemons.
This is the new world born in Moscow this week. Putin previously defined it as a new anti-colonial policy. It’s now laid out as a multipolar patchwork quilt. There’s no turning back on the demolition of the remnants of Pax Americana.
‘Changes that haven’t happened in 100 years’
In Before European Hegemony: The World System A.D. 1250-1350, Janet Abu-Lughod built a carefully constructed narrative showing the prevailing multipolar order when the West “lagged behind the ‘Orient.’” Later, the West only “pulled ahead because the ‘Orient’ was temporarily in disarray.”
We may be witnessing a similarly historic shift in the making, trespassed by a revival of Confucianism (respect for authority, emphasis on social harmony), the equilibrium inherent to the Tao, and the spiritual power of Eastern Orthodoxy. This is, indeed, a civilizational fight.
Moscow, finally welcoming the first sunny days of Spring, provided this week a larger-than-life illustration of “weeks where decades happen” compared to “decades where nothing happens.”
The two presidents bid farewell in a poignant manner.
Xi: “Now, there are changes that haven’t happened in 100 years. When we are together, we drive these changes.”
Putin: “I agree.”
Xi: “Take care, dear friend.”
Putin: “Have a safe trip.”
Here’s to a new day dawning, from the lands of the Rising Sun to the Eurasian steppes.
Read full article here.
The weaponization of global payment infrastructures: A strategic dilemma
By Andreas Nölke, Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
The sixth sanction package of the European Union in the context of the aggression against Ukraine excludes Sberbank, the largest Russian bank, from the SWIFT network. The increasing use of SWIFT as a tool for sanctions stimulates the rollout of alternative payment information systems by the governments of Russia and China. This policy white paper informs about the alternatives at hand, as well as their advantages and disadvantages. Careful reflection about these issues is particularly important, given the call for an "Economic Article 5" tabled for the next NATO meeting. Finally, the white paper highlights the need for institutional reforms, if policymakers decide to return SWIFT to the status of a global public good after the war.
Background: The exclusion of banks from SWIFT as repeated feature of Western economic sanctions
On 3 June 2022, the European Union has decided to exclude the Russian Sberbank – as well as two smaller Russian banks and one from Belarus – from the SWIFT network, as part of the sixth sanction package during the Ukraine war. Sberbank is by far the largest Russian bank, with about one third of Russian banking assets. Previously, it was excluded from SWIFT sanctions – in contrast to other Russian banks such as the second largest one, VTB – because of EU concerns about the processing of energy payments. Still, even the sixth round of sanctions leaves Gazprombank out (the number 3 of Russian banks), for the processing of the remaining oil and gas payments.
While the expulsion of a Russian bank from the SWIFT network is not new in the context of Ukraine- related sanctions, it is the first major action in this field for quite some time. While the exclusion of some Russian banks form SWIFT was part of the third sanction package adopted on 2 March 2022, later packages focused on other types of sanctions against Russia.
The exclusion of banks from SWIFT as part of Western economic sanctions also is not new. Previously, it has been applied to Iran and North Korea as well. However, never before have banks of a comparable size and degree of connectedness with the global financial system such as Sberbank been banned from SWIFT.
The intensification of the utilization of SWIFT as economic weapon in the context of Western sanctions against Russia increases concerns by third parties about the future of global cross-border payment infrastructures. Not only Russia, but also countries such as China and India develop options on how to replace SWIFT in future transactions, leading to a fragmentation of the global payment system. These developments pose a strategic dilemma to European policy-makers. If they continue to utilize SWIFT as an economic weapon, they risk increasing costs for cross-border financial transactions. Moreover, they may even lose the central position of the EU (and the USA) in global financial infrastructures. Without “weaponizing” SWIFT, however, they would forego a powerful instrument for economic sanctions.
In order to support an informed decision in this dilemma situation, this policy white paper elaborates on the advantages and disadvantages of the utilization of cross-border payment infrastructures for economic sanctions. Before doing so, however, we need to understand the functioning of the current infrastructures and their most important alternatives.
Download the full paper here.
China’s big foreign policy plays leave Australia in the cold
By Geoff Raby, Former Australian ambassador to China (2007–11); APEC (2003–5); and World Trade Organisation (1998–2001)
The Chinese Communist Party’s 20th Party Congress in October last year may be seen with the efflux of time as a watershed event, not so much for the extension of Xi Ping’s tenure in the job, but for subsequent sharp policy resets.
This year began with the shock announcement that China’s zero covid policy, and its disruptive and traumatic lockdowns, was over. Victory over the pandemic was declared. China was said to be open to foreign business and was keen to attract inward foreign investment. Tourist visas would be issued shortly. The economy would recover with the government seeking something over five per cent GDP growth this year.
China’s wolf-warrior diplomacy was quietly shelved, and the Foreign Ministry’s high-profile aggressive spokesperson, Zhao Lijian, shunted out of sight. A charm offensive was now in the offing. Foreign Minister Qin Gang announced at the recently concluded National People’s Congress that the expenditure on ‘diplomacy’ this year would increase by 12 per cent over the previous year; at a rate of four percentage points higher than expenditure on defence.
On 18 February, State Council Foreign Affairs Minister, Wang Yi, announced at the Munich Security Conference that China was about to present a peace plan for the Ukraine conflict. On the first anniversary of Russia’s invasion of Ukraine, 24 February, China released a 12-point roadmap for a negotiated peace settlement.
Russia welcomed the Chinese initiative, while Ukraine’s President Zelensky acknowledged China’s intervention but rejected negotiations while Russia occupies Ukraine Territory (it is not clear if this applies to pre-2014 territory annexed in that year by Russia).
The US rejected Beijing’s intervention out of hand, partly because Russia had welcomed it. The timing was not helped by the fiasco of the errant balloon shot down over the US and Secretary of State Antony Blinken’s abrupt cancellation of his visit to Beijing ostensibly because of the incursion. At the time of further far reaching and tough sanctions on exports to China of certain technology, especially related to chips, US/China relations have plumbed even greater depths.
China’s language protesting the new round of Biden sanctions and the shooting down of the balloon has, however, been restrained within what could be expected. Despite some sharp words, which would hardly cause offence, China’s response has been largely one of resignation. It is as if Xi Jinping has given up on trying to improve relations with the US.
As he made clear at the recent National People’s Congress, China firmly believes that the US is engaged in an international effort to contain it. China’s response then is to build a ‘Great Wall of steel’ to protect itself, in other words become more self-reliant.
At the same time, it is seeking to project to the so-called global south, or non-western aligned states, and perhaps some in Europe, an imagine of responsible global leadership as a peacemaker. Both Hungary and France welcomed China’s Ukraine efforts – if not the detail – to broker a peace settlement.
China had clearly begun to play seriously in the US global space – avoiding confrontation while demonstrating initiative and capacity to effect outcomes.
Then on 10 March (Beijing time) Beijing announced to the shock, it would seem, of just about everyone, and especially the US, that it had brokered a reproachment between Iran and Saudi Arabia. Suddenly, China was also starting to shape the geopolitical landscape of the Middle East.
This was hardly covered in Australia. It seemed that the symbolic and substantive import of this was lost on the local media. Symbolically, it announced that China was expanding the ways in which it was responding to US challenges; that it now saw itself as having global ambitions well beyond its customary East Asian sphere of interest, including in a region of long-standing, primary US influence. Substantively, as a major importer of Middle East crude oil and LNG, China was intent to ensure that it would be an active participant, perhaps the leading one, in securing its sources of supply.
Subsequently, Xi Jinping visited Moscow. China’s Ukraine peace initiative and the brokering of the reestablishment of diplomatic relations between Saudi Arabia and Iran framed the visit diplomatically. Joint statements of support, enduring friendship and new strategic partnerships were predictable as was China’s refusal to provide military aid to Moscow. Putin looked and sounded like the junior partner in the relationship.
It is not too much of a stretch to think of China now as the dominant Eurasian power. While the US has sought successfully to rally its alliance partners in East Asia, in parts of Europe and has drawn India more closely into the QUAD, China has increased its influence in Central Asia (partly because of the weakening of Russia), in much of the developing world, and now in the Middle East.
The contest for global influence and leadership will come not so much from which country prevails in the western Pacific, but from which country dominates Eurasia with its vast energy and mineral resources, and strategic geographical setting, and exercises influence over the Middle East and Africa, for similar reasons of resources and energy.
In my 2020 book, China’s Grand Strategy, I argued that Australia faced a dystopian future with the end of the US-led international order with one replaced by a multipolar order comprising many authoritarian and quasi-authoritarian states in competition with the older democracies. The emerging order would comprise essentially two bounded orders – one led by the US and one by China.
As we can see, this would be characterised by competition in many areas, but also by cooperation where the interests of major players in each order are aligned, such as climate change. In recent days, we’ve seen another example of this cooperation with China’s support for the IMF’s financial bailout of Sri Lanka.
The challenge for Australia in this new world of bounded orders is that it is so utterly economically dependent on China while it continues to align itself ever more closely to the US. In view of the profound complementarity between the two economies, this dependency is irrevocable. Despite twenty years of promoting India as an alternative to China, and numerous reports and diverting of government resources, the dial has hardly moved in terms of trade flows.
With the QUAD and AUKUS, complementing ANZUS and the Five Eyes, as the predominant architecture of Australia’s foreign and security policies, Australia has now firmly embedded itself in the US-led order. It has ceded both foreign policy and defence independence. In these circumstances, China can be expected to redouble its efforts to meet its energy and resource needs from within its own bounded order at the expense of Australia. China’s becoming, perhaps, the dominant influence in the tortured affairs of the Middle East may well have brought that time forward.
Read the full article here.
China will still be a major growth driver this year
By Wang Huiyao | Founder of the Center for China and Globalization(CCG)
China’s “two sessions” – the annual meetings of the legislature and political advisory body – which wrapped up last week in Beijing, are always eagerly watched by investors around the world. This year, along with the tailwinds of China’s reopening, the meetings point to promising areas for international engagement and economic cooperation.
First, the newly appointed cabinet is familiar with the market economy and private sector, and well-placed to promote China’s integration with the global economy. In his first press conference as premier, Li Qiang sent positive signals with his pragmatic tone and pledged that China will continue to open up “no matter how the external situation may evolve”.
Li is seen as having pro-business credentials, having worked in the dynamic coastal regions of Zhejiang, Jiangsu and Shanghai, where he played a key role in supporting Tesla’s setting up of its Gigafactory, the first wholly foreign-owned car manufacturing plant in China.
Also, the retention of trusted technocrats in key roles – including the heads of the central bank and ministries of finance and commerce – provides reassurance of policy continuity, as new appointees settle in and the restructuring of the government and party organs is carried out.
These officials have been among China’s most important interlocutors at international meetings such as of the Group of 20, better known as G20, and have overseen reforms in the country’s financial and banking sectors, which are among the most important areas of China’s market liberalisation in recent years.
On the policy side, the government work report and other key documents presented at the two sessions also gave foreign investors some positive signs.
Fortifying the Chinese economy against risk and external uncertainty was a major theme of the meetings. But this drive for national security is not all bad news for multinational companies. The Chinese government still sees foreign investment as crucial to achieving its long-term strategic goals, particularly projects that can help secure its industrial chains and boost its innovation.
The government work report contained language that upgraded the importance of attracting foreign investment this year. There were also pledges to open markets wider, especially in services, and to improve the business environment, with an emphasis on legal and regulatory reforms to promote fair competition and better protect foreign investment.
Steps to ease cross-border travel are also a boost for international business. Just after the two sessions closed, China announced that it would resume issuing nearly all categories of visas for foreign visitors. Global business executives have started to return to China, and many more plan to visit for key events this month such as the China Development Forum and Boao Forum for Asia.
A commerce ministry spokesman reiterated at a recent press conference that investors from all over the world were welcome in China, and that the ministry will “play an active role in promoting key foreign-funded projects”, including “more convenient services for executives”.
The two sessions also signalled that China would seek to increase engagement and cooperation abroad this year.
Foreign Minister Qin Gang told the press Beijing had hit the “acceleration button” for diplomacy as China opens and re-engages with the world. This diplomatic engagement will support more economic cooperation and create opportunities for foreign firms in a range of sectors and regions.
The double-digit budget increase of 12.2 per cent for diplomacy, announced at the two sessions, reflects China’s ambitions to play a bigger role around the world, especially in the Global South, under its global initiatives for development and security.
China’s recent role in brokering a restoration of Iran-Saudi ties is a sign of things to come as the country increasingly translates its economic influence into political clout in regions such as the Middle East.
Meanwhile, the Belt and Road Initiative, now in its 10th year, is being recalibrated. The National Development and Reform Commission’s call to build “small but beautiful” projects along the belt and road indicates a shift towards a greater focus on quality, efficiency and risk control, and towards projects in sustainability, digital technology and health.
This should expand opportunities for cooperation in third markets with multinational corporations that have solutions and expertise in these areas, particularly with an uptick in activity expected with the third Belt and Road Forum due to be held later this year.
Finally, sustainability continues to stand out as a promising area for long-term cooperation. The government work report confirmed that green development will remain a priority this year.
Multinational companies will be well-placed to establish themselves as leaders in this field by customising their global green strategies to the China market, and linking global commitments to the government’s environmental goals through pilot projects and local partnerships related to areas such as supply chains, technological upgrading and green consumption.
Although geopolitical frictions have increased risks for multinational companies, the two sessions reinforce the view that China will continue to present lucrative opportunities to foreign investors that can adapt and find niches aligned with the nation’s long-term development strategy. For many international companies, China will continue to be a major driver of growth this year – especially when prospects are uncertain elsewhere.
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