“There are changes now that haven’t happened in one hundred years – and when we are together, we drive those changes,” Xi remarked to his Russian counterpart. “Take care of yourself, dear friend”.
Global commerce is in the midst of a long-term recalibration. The centre of economic gravity has been shifting east and south for some time, away from Western Europe and the Anglosphere.
The US remains the biggest economy on earth in dollar terms, chalking up GDP of just over $25 trillion (£20.5 trillion) in 2022 – around a quarter of the global total and eight times the UK. But China is gaining fast.
Back in 1980, the economy of the People’s Republic was just one tenth that of the US. But at $18.8 trillion, the Chinese economy is now over three quarters that of America. Using what economists call “purchasing power parity”, allowing for exchange rate variations, Chinese GDP was actually worth £30.1 trillion last year according to the International Monetary Fund, having overtaken the US on this measure in 2015.
What’s more, on the same PPP basis, India is now the world’s third-biggest economy while Brazil has just outgrown the UK – and is now in the global top ten. And the combined Brics grouping (Brazil, Russia, India, China and South Africa) now accounts for two fifths of global GDP, while the G7 – the traditional “ruling club”, including the US, Britain and Japan – comprises less than a third.
Since the first Brics summit in 2009, this increasingly powerful group has tried to act as a G7 alternative, challenging Western hegemony. In 2014, the Shanghai-based New Development Bank (NDB) was founded, and has since extended billions of dollars of soft loans across the non-Western world. Originally comprising just the Brics themselves, it has since welcomed Egypt and the United Arab Emirates – and, on Friday, Former Brazilian premier Dilma Rousseff became the NDB’s latest president.
Similarly, the Asian Infrastructure Development Bank was established in 2016 – covering the fast-growing Asia-Pacific region, designed to rival the US-dominated World Bank.
The Brics have also set up an IMF-style contingent reserve facility – and a further development bank linked to the Shanghai Cooperation Organisation, a six-country Eurasian political, economic and military grouping dominated by China and Russia.
For years, the large Western powers have veered between ignoring Bric initiatives and attempting to join in to influence them. The UK, France and Germany, for instance, but not the US, joined the AIIB, the working language of which is English.
The war in Ukraine, though, has significantly sharpened the geopolitical fault-lines between the Brics and the West – with Xi’s visit to Moscow highlighting those cracks for all to see.
Xi Putin - Pavel Byrkin/AFP
This was Xi’s first overseas trip since beginning his third term as Chinese leader. It was designed to signal that, while China has proposed a “peace plan” in Ukraine, it is still in Russia’s corner, whatever the state of relations between Putin and the West. A week after the International Criminal Court issued an arrest warrant for Putin, Xi went to Moscow anyway.
It’s clear China has no intention of observing Western sanctions, ignoring the recently-imposed price cap on seaborne Russian oil exports. That then gives cover for India and some other major oil importers to keep buying cheap Russian crude. Western attempts to weaken Russia’s finances and, in turn, Putin’s ability to fund the military, are being brazenly undermined.
The emergence of the Brics, once a sign of broadening Western investment horizons across an increasingly interconnected world, is turning into a source of growing East-West tension. Having said that, while this Xi-Putin summit was eye-catching, the reality is China’s economic collaboration with the US and Western Europe dwarfs its links with Russia. And in the end, for Xi, economics is what ultimately counts.
Much has been made of the spike in trade between Russia and China since Putin invaded Ukraine. In truth, having been enemies for much of the Cold War, Russia and China have been building sizeable commercial ties across their shared 2,700-mile border over several decades. From just $12bn in 2003, bi-lateral Sino-Russian trade grew to $90bn 10 years ago, before reaching $110bn in 2019.
There are clear synergies between a major energy exporter on the one hand, and the world’s number one manufacturer and biggest energy importer on the other. Oil and gas pipelines were built from Eastern Siberia to China, which opened in 2009 and 2019 respectively – with another trans-Mongolian gas conduit under discussion.
Since Putin’s invasion, Russia has been unable to pump gas through Nordstream to Germany and on to elsewhere in Western Europe. Gas exports have continued, though, despite the conflict, through pipelines crossing Ukraine. Beijing has taken up some of the slack, with Russia’s exports to China rising to £112bn in 2022, up from £79bn the year before – driven not only by higher energy export volumes but also higher prices.
But for all the choreography of the Xi-Putin Summit, Russia’s £190bn of bilateral trade in 2022 represented less than 3pc of China’s overseas commerce. The European Union, in contrast, generated $847bn and the US $759bn – almost a quarter of China’s bilateral trade between them.
While China is Russia’s largest trading partner, increasingly so, Russia barely makes China’s top ten, outstripped by Malaysia, Australia and South Korea. The US and Western Europe meanwhile, including Britain, generated 27pc of China’s trade last year – almost 10 times more than Russia.
Both Xi and Putin are keen to square up to the West, knowing that plays well with both domestic and some international audiences. But the Chinese Premier also knows his grip on power rests on economic growth and – and that, in turn, depends heavily on economic links to the West.
Beijing may yet play a significant role in convincing the Kremlin to end this war.
