The Xi-Putin meeting: It’s not about the money

After almost 1,000 days of not leaving China during the pandemic, who does Xí Jìnpíng 习近平 sit down with on his first trip abroad? That would be Russia’s Vladmir Putin, making it the two authoritarian leaders’ first face-to-face conversation since late February, when they met in Beijing — that was during the Winter Olympics and right before Russia invaded Ukraine.

Speaking to Xi on the sidelines of the Shanghai Cooperation Organization Summit in the Silk Road city of Samarkand, Uzbekistan, Putin praised China’s “‘balanced’ position on the conflict in Ukraine and scolded the United States for what the Kremlin chief said were provocations over Taiwan,” according to Reuters. (Xi’s remarks have not yet been reported.)

Why is Xi meeting with Putin anyway? After all, given the tension in the fractured relationship with the U.S. over Taiwan, the South China Sea, Hong Kong, Xinjiang, and more, an argument could be made that a sit-down with American president Joe Biden should happen first. (A meeting between the U.S. and Chinese leaders is likely to happen at the G20 meeting in Bali in November; Xi and Biden spoke in a call on July 28.)

The meeting is not about economics, even though sanctioned Moscow, of course, is eager to get access to China-produced electronics and Beijing is hungry for access to Russia’s rich oil and gas fields (Russia is China’s top source of energy imports). Trade between the two countries surged by 28.9% in the first five months of this year according to Chinese customs, and could top $150 billion this year.

But the reality is that Russia’s $1.78 trillion economy is only the 11th largest in the world, smaller than those in France, Italy, and South Korea, and insignificant when compared with those of the U.S., the world’s largest at $23 trillion, and number two China at $17.7 trillion. And while only about 2% of China’s total exports go to Russia, more than eight times that, or 17%, go to the U.S.

How about the theory that despite their relatively small economic relationship, the two countries have a deeply disruptive plan: They aim to run an endgame around the global financial system by setting up a joint financial payments system that is invulnerable to any punitive actions taken by the U.S. China and Russia are “consistently expanding settlements in national currencies” and working to “offset the negative impact of unilateral sanctions,” Putin wrote in a commentary in Xinhua earlier this year.

Nope, that’s not happening, either, no matter how many times Russian officials say it is. “Russia wants a sanctions-proof payments system, which can only mean one walled off from the U.S. and Europe. China’s goal is to build a payments infrastructure that makes transactions in renminbi more convenient for the rest of the world. These objectives are mutually exclusive,” explains Gavekal Dragonomics analyst Yanmei Xie.

Even though the two leaders announced a new “no limits” partnership earlier this year, to the consternation of much of the West, there are, in fact, serious limits. China basically has not broken the international sanctions imposed upon Moscow over its invasion of Ukraine and even ordered its big state financial institutions, including Bank of China, to stop doing business with Russia. And Beijing has carefully avoided doing anything that would directly aid Moscow in its invasion of Ukraine. “China has not stepped up to supply Russia with weapons or advanced electronics during the war,” Iikka Korhonen, the head of research at Bank of Finland Institute for Economies in Transition, said to Bloomberg. “There are limits about what these so-called allies are prepared to do.”

Instead, the obvious closeness of the Xi-Putin relationship seems more to do with the two leaders’ mutual distaste for U.S. power and what they view as Washington’s meddling around the world than pretty much anything else. For Beijing, Moscow was justified to a large degree in its invasion of Ukraine. As Lì Zhànshū 栗战书, the chairman of China’s National People’s Congress, bluntly put it on his visit to Moscow earlier this week: “The U.S. and NATO threatened Russia at its home door, forcing it into a corner. It’s only natural for Russia to fight back to protect its core national interest.”

For Beijing, there is a parallel to what it is facing with the U.S. military presence in the Asia-Pacific, and in particular, with U.S. support for Taiwan. Like the Russians who were forced “into a corner” by NATO and so quite naturally had to “fight back,” China’s leaders also feel they are being challenged by the U.S. over Taiwan, and so have no choice but to strike back. Having Russia on their side, including perhaps at the UN, when they decide to move more forcefully against Taiwan, is also important.

So don’t look at export values and investment or expect breakthrough financial deals in the China-Russia relationship — Xi’s decision to keep buddying up with Putin is all about politics.