May 21, 2024 - 1:00pm

Last week Russian President Vladimir Putin travelled to Beijing, culminating in a widely-covered “bro-hug” between him and Chinese President Xi Jinping. When Russia and China started to deepen their partnership in the wake of the 2022 invasion of Ukraine, many predicted that it would not last because of historical animosities between the two countries. Those voices have been resoundingly proved incorrect by subsequent events.

Western foreign affairs publications noted that the visit had substance, with Foreign Policy remarking that a series of bilateral agreements had been signed during the trip. In fact, reading the original statement published by the two countries — which runs to nearly 8,000 words in English — there is a significant amount of meat on these diplomatic bones.

While the two powers have stopped short of announcing a formal military alliance, they have ramped up cooperation in the military sphere. They also agreed to cooperate on nuclear technology and media influence, and hammered out an agreement on global institutions. Interestingly, the Russian government will promote Chinese language skills among its population while the Chinese will return the favour for the Russian language. Evidently, a deep, interconnected Eurasian alliance is finally coming to pass.

Not by chance, the Chinese have been reportedly offloading American Treasury debt at a record pace. Bloomberg noted last week that in the first quarter of 2024, the People’s Bank of China offloaded a record $53.3 billion of American government debt. Tracking through the changes in China’s asset-holdings, the Bloomberg report hinted at the fact that Beijing might be recycling the money it received from selling the American government debt into gold.

No doubt this dumping of American Treasuries is in part a response to the United States massively raising tariffs on Chinese products of late — including a 100% tariff on Chinese electric vehicles announced this month.

Veteran Wall Street economist Torsten Slok last week highlighted that the Chinese are moving out of the foreign market for American government debt and private buyers are moving in. These private buyers are much more sensitive to market conditions, especially changes in Federal Reserve interest rates, and could dump the debt if they saw rates fall during a recession. “If you have a rising debt level and you have a pretty significant deficit,” Slok added, “then your vulnerability in case of a shock is just higher than normal.”

This in turn could risk a serious fiscal crisis in the United States. Michael Feroli, Chief Economist at JP Morgan, recently said that this could provoke a similar crisis to what Liz Truss’s government faced when she tried to push through unfunded tax cuts.

The global situation is becoming extremely serious. When China and Russia expanded their cooperation and the Brics alliance increased its membership, many commentators simply denied that any of this mattered. It is now becoming extremely clear that these developments matter a great deal — and could soon have profound ramifications for Western living standards.

There are new strategies and new approaches that can be tried as we move towards a multipolar world. But the first step is at least acknowledging the problem before we walk over the cliff into an economic crisis from which we cannot escape.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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