March 2, 2022 - 3:47pm
Slowly but surely, China is playing a more central role in the Ukrainian crisis. After initially supporting Putin’s invasion of Ukraine, China has since made it clear that it wants a diplomatic resolution. Fearing that overt support for Russia may incur secondary sanctions on Chinese institutions, Beijing signalled that it was ready to play a role in securing a ceasefire, saying that it “deplored” the ongoing war.
But even before the recent conflict with Ukraine, Russia and China had begun to elaborate a much broader alliance in terms of trade, mutual development assistance, fixed investment, technological cooperation, and the like. The Chinese yuan and ruble denominated transactions have grown significantly year-to-year, which will increase now that Russia has been barred from using the US-controlled SWIFT financial settlement system.
As the euro, South Korean won and other major currencies have been sliding during the intensifying conflict in Ukraine, the yuan is increasingly growing as a “safe haven” currency — a role hitherto dominated by King Dollar. In the mean time, China’s Cross-Border International Payments System (CIPS) is moving to replace SWIFT for Russian trade financing. As economist David Goldman noted recently in the Asia Times:
This will not come without some short-term cost to Beijing if the US chooses to impose sanctions on Chinese banks, but longer term SWIFT’s days as a monopoly are coming to a close. Even though SWIFT manages $400billion of daily transactions to CIPS’ $50billion, CIPS volume has been growing rapidly. If anything, the Ukraine conflict and the accelerating expansion of trade with Russia will further increase the size of CIPS, which will be a viable alternative to nations who would otherwise be vulnerable to Washington’s dictates.
Certainly, as global polarisation increases, China will be less likely to submit reflexively to the current dollar-centric monetary system. If anything, the guarantee of a vast new source of oil, gas, and other strategic commodities from Russia will help to address China’s longstanding comparative disadvantage in these areas relative to the US, who have basically frittered away their unique period of dominance in the immediate aftermath of the Cold War. Whatever the ultimate outcome of the war in Ukraine, it will almost certainly accelerate the ongoing shift of power from Washington to Beijing.
Marshall Auerback is a market commentator and a research associate for the Levy Institute at Bard College.
Mauerback
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeSpot on. So much truth in a 500-word article, and often the truth is painful:
“the US, who have basically frittered away their unique period of dominance in the immediate aftermath of the Cold War.“
Fair enough but what did the West fritter away? What should they have done? Expand NATO to further box Russia in? Prop up dictatorships in Africa and Asia to limit Chinese influence?
What they should have done is not treated Russia as if it were still in the Cold War all these years…had they done the opposite it’s likely that we would not be facing this now.
One possibility: Make NATO fold up its tents in 1991. It’s mission was, in the words of the first general secretary of NATO, something to the effect of “to keep the Russians out, the Americans in, and the Germans down.” Done! But, after 1991 we got self-interested mission creep.
Some folks would argue that NATO should have extended membership to … Russia! Interesting idea, but it requires development. Here’s some development:
NATO Membership for Everyone!
If Administrative Process can achieve peace between nations, then open membership to everyone. Were it only so easy.
https://dvwilliamson.substack.com/p/nato-membership-for-everyone
I guess that every day Putin looks in the mirror and sees a hero, a person who helps Russia to stay strong in world when the West is getting weaker and weaker. Putin cannot withdraw; he can’t suddenly change into a nice guy (= weakling). So the only answer is for him to be ‘removed’ by his own people.
Then a mark 2 appears. He – must be a ‘he’, a ‘she’ would be weak and a ‘they’ would be silly – He seems much more conciliatory but is just the same as Putin. Let us call him Pitun. Pitun, can get lots of advantages by being a peace-bringer, saving the world from conflict, letting everyone get back to peaceful discussions of gender.
Meanwhile, Xi knows what further preparations he has to make to allow him to take Taiwan without destroying China. His preparations may take ten years but China will invade Taiwan. People in Taiwan must be shaking now.
Such a macho hero in fact that Putin cowers away in fear of covid!! It is rather easy to be heroic with other people’s lives!
There is no inevitability about whether China will invade Taiwan. For example, it is possible to ultimately threaten it with nuclear annihilation. As JFK was willing to do with the Soviets. Why is it that we assume our adversaries might well do this, but the West can not? It depends on whether the US – and the many nations who have every reason to be very suspicious of China, have the political and moral will to resist. They may well not, but nothing is inevitable.
You show a somewhat patronising attitude to Taiwan, as of course many of us did the Ukrainians. I have spoken to several Taiwanese people, and in fact they are very used to Chinese threats, and not ‘shaking’. It would be a tragedy for Taiwan, which has developed into a vibrant democratic state, to go under. It would also be extraordinarily self-defeating as well; why would any other Asian nation have any faith at all in the West if that happened?
Didn’t the party which supported a better relationship with China have a sizeable minority in the last Taiwanese election? Encouraging that is the way China will go rather than waging war on a fellow population.
If the Russians want to end up as a vassal state to China, eh, wouldn’t be the first time Moscow made tribute to a Great Khan east of the Urals.
Definitely agree about the US (and by extension the West) frittering away its period of dominance. Utter bloody decadence. Time to shape up.
There is little doubt that the US was hubristic and picked the wrong fights with the wrong enemies in the 1990s at a time it was completely unchallenged. Although we should always beware of the clarity of 20:20 hindsight! Afghanistan probably could never have become in hundreds of years a liberal democracy, Ukraine perhaps could have.
Major powers have made major strategic errors before and recovered; Prussia at the time of Napoleon, Germany after the First World War (unfortunately), Russia after the Crimean and Russo-Japanese wars, and of course China itself in more recent decades. Let us not forget that the US military was tiny at the start of the Second World War and how rapidly it turned that around once it had to /made a decision to do so.
But so far, despite so many people writing off the West, the reaction to Putin’s outrageous aggression has been quite impressive. I just don’t like this world-weary defeatism, which of course served the West so very well between the wars.
This stuff is so very fashionable; as once was the inevitable supersession of the US by Japan. China is of course larger and more formidable than Japan, but it nonetheless has great weaknesses, not least the inevitable problems of centralised control, an increasing demand for servility among its own population, and suspicion of its own Tech sector. It is still outnumbered and outgunned by its opponents overall. And the US is extraordinarily innovative; this kind of analysis tends to be of the ‘fixed cake’, zero sum variety. Even China’s population gap with the US is narrowing and its population becoming significantly older than that of the US.
Mr. Auerback’s recent post on Unherd (https://unherd.com/2021/12/the-west-must-stay-out-of-ukraine/) portrayed Russia as a victim, not an aggressor. His post (above) must be read in that light.
His facts are open to question. Reuters claims SWIFT processes $5-6 trillion each day (https://www.reuters.com/article/china-banks-clearing-idUSL3N2F115E), not the $400bn claimed by Mr. Auerback. CIPS is a perfectly viable alternative payment system – provided you want to settle up in yuan rather than dollars. At present, only around 2% of the world’s transactions are in yuan, so the CIPS won’t displace SWIFT anytime soon.
I am not really convinced by this. I guess time will tell, but my council isn’t really that efficient, I doubt the Chinese government is any better.
The US can emerge with gains from the war in Ukraine. European expenditure on its own defence will almost certainly rise. This means that the US will spend less on NATO, allowing the US to spend more on military operations in Asia.
Unless Russia
Western Europe is broke – we trashed our economies and public finances to “fight Covid”. We can’t feed ourselves, we are not energy independent, and we rely on sophisticated markets for our exports. Without cheap and reliable Russian gas, we have no energy, no fertilisers, no feedstock for chemicals and plastics.
One could argue that it has always been broken. If weren’t for the U.S. and GB throughout the 20th century, German would be the sole language of the continent today.
Sounds like the plan that Trump had in mind. Go figure.