The End of the Affair? Kevin Rudd on China's Relationship with Russia

"On the question of buyer’s remorse, I think the answer is yes, to some extent. But it would take a lot of re-engineering to undo where Xi has gone with Putin."

GEOPOLITICS

---

In the last week, China’s influence on the Ukraine crisis—which, while indirect, was big to begin with—has only grown. Severe Western sanctions on Russia have deepened Moscow’s dependence on Beijing; China is now the only major country that remains fully on Russia’s side. Or does it? As the carnage in Ukraine has gotten worse and Russia stumbles haplessly from one failure to the next, a few tantalizing signs have emerged that suggest that Chinese leader Xi Jinping may be rethinking his embrace of Russian President Vladimir Putin. To help understand how Chinese thinking is evolving, and what it all means for the war in Europe, I turned to Kevin Rudd. A former prime minister of Australia who now runs the Asia Society, Rudd is the rare politician who’s also a true policy expert. Few Westerners know Beijing, its power players, and their strategy better than he does. We spoke on Thursday from his home in Adelaide.

Mikhail Svetlov / Getty

Octavian Report: There’s been a lot of talk in policy circles that Russia’s invasion of Ukraine has put China in an awkward position due to Beijing’s longstanding support for principles like noninterference, national sovereignty, and territorial integrity. Do you think this represents a real problem for China?

Kevin Rudd: We should always remember that China is governed by a Marxist-Leninist party. And that party has happily made exceptions on the question of the inviolability of territorial integrity and political sovereignty over the years.

Remember, too, that China’s emphasis of these ideas comes from the period of 1954, when, under the premiership of Zhou Enlai, China framed them as part of the so-called five principles of peaceful co-existence in order to deal with the fact that many national liberation movements were concerned about China interfering in their internal political affairs. So China has always had a degree of pragmatism about these ideas.

I think the real problem for the Chinese Communist Party now is that, beginning with the advent of the Trump administration, Beijing rapidly moved to position itself as the true defender of the UN-based international system—anchored, of course, in the principle of the sovereignty of all states. Now China faces a problem with its standing across the developing world—in particular, in Africa, Latin America, and the rest of Asia—where China’s supposed support for national sovereignty has been brought into sharp questioning as a result of its tacit support for Putin’s invasion of Ukraine.

OR: There have been numerous reports in recent days that China is starting to lose patience with Russia and is increasing its support for Ukraine. Do you see a real shift occurring?

Rudd: My argument is that China’s foreign-policy establishment was deeply uncomfortable from the get-go with the high level of support Xi Jinping had been demonstrating for Vladimir Putin, underpinned by their joint declaration of February 4. Since the Russian invasion of Ukraine has not gone well militarily, the divisions in China’s foreign- and national-security establishment have become more acute. The internal questioning of the wisdom of China’s original position is becoming stronger.

So far, the shift in China’s substantive position has been rhetorical, moving from a position whereby they were defenders of political sovereignty and territorial integrity, to a position of blaming the Americans for the Russian invasion, to a position of still being reluctant to use the term “invasion” but recognizing that there is a war on, to a position whereby out of the blue, Wang Yi, the Chinese foreign minister, has offered himself as a mediator. But if you peel down to the substance of it, China’s repositioning hasn’t yet become a substantive one. It may, but it hasn’t yet.

OR: Judging from the perspective of Chinese national interests, do you think Xi made the right bet on Putin? Or do you think he’s feeling some buyer’s remorse right now?

Rudd: Well, Xi Jinping’s romance with Vladimir Putin is not an overnight development. It’s been unfolding since the first invasion of the Donbas and of Crimea in 2014. When sanctions were imposed back then, Putin’s historical reservations about China had to be pushed to one side as China became his only source of international, diplomatic, economic, and financial support. And this relationship has intensified over the last seven years. On the question of buyer’s remorse, I think the answer is yes, to some extent. But it would take a lot of re-engineering to undo where Xi has gone with Putin.

OR: Do you think China stands to gain or lose more by backing Russia in this fight?

Rudd: The core Chinese national interest at stake with Russia over the last 30 years has been to put to bed longstanding Chinese strategic concerns about their exposed border with the Russian Federation and the Soviet Union before that. Since the resolution of that issue and the rapid improvement of the Russia-China relationship, China’s level of comfort with Russia has moved from “thank God we don’t have to worry about a Russian security threat anymore” to “how can we collaborate with Russia diplomatically around the world?”

These are the big political and diplomatic assets that China, in Xi’s view, has secured from its ever-closer relationship with the Russians. Militating against that is a global reputational concern stemming from China’s tacit support for Putin, which risks undermining China’s credentials and bonafides in the eyes of the world, in particular the developing world and some of the more softly positioned countries in Europe.

So what’s the trade off here from a Chinese national interest point of view? Hard security vis-a-vis the Russia-China border and diplomatic collaboration with Moscow at the UN Security Council and on down on most international questions, versus China’s concern for its reputation as the next mainstay of the global order in a post-American world.

OR: China’s growth depends on a peaceful world of open markets. Russia has now endangered that world. Is Beijing worried?

Rudd: If you go through Xi Jinping’s hierarchy of national interests, the security of China’s relationships with its neighbors and of its common border with Russia is number one. Priorities number two and three are sustainable Chinese economic development. On that front, Xi has encountered problems domestically by shifting the center of gravity of Chinese economic policy further and further toward the left, away from the private sector and back toward state-owned enterprises. That’s one of the large reasons why China’s domestic economic growth rate in the last several years has begun to slow significantly. Now the impact of the Russian invasion of Ukraine on global energy supplies, with a possible third oil shock ricocheting through global inflation, will create more headwaters for China’s long-term economic growth.

OR: How much potential do you think China has to bail out the Russian economy, which is being hammered by sanctions and the pullout of many global corporations?

Rudd: It’s important to analyze this question as forensically as possible, by looking at the measures directly taken by the West and by Western corporations. One is the removal of Russian financial systems from SWIFT, the international dollar-denominated financial transaction system. There’s a limit to what China can do to substitute for SWIFT. It has its own national counterpart to SWIFT, but by no means does that have the global reach of SWIFT. So in that area, the answer to your question is, not much.

As for the fact that global central banks have effectively frozen Russia’s foreign currency reserves, Russian holdings of the renminbi in Chinese-controlled financial institutions do not represent a large part of Russia’s overall foreign reserves. So on this one, China can do somewhat more than it can on SWIFT, but not a lot more. The real area where China can help is by absorbing more Russian oil and natural gas. China’s capacity to absorb more is significant.

That said, we need to understand that it is not in the nature of the Chinese economic beast to just hand out economic favors. China represents a potential alternative market, but it will not magically be switched on overnight to counter the loss of Nord Stream 1 or Nord Stream 2. And then there are physical delivery problems as well, in terms of the pipeline infrastructure required to support a massive shift in oil and gas transactions.

Finally, on the question of foreign direct investment and the pullout of Western firms, China does have the capacity to assist by directing not just state enterprises, but also private Chinese corporations to increase their presence on the ground in Moscow. But given that the state of China’s corporate sector—particularly its private sector—is not great at the moment, Beijing’s ability simply to turn on this tap is constrained.

So the short answer overall is that, assuming China was politically willing to do so, its ability to materially, financially, economically, and commercially assist Russia is real—but limited.

OR: Let’s stick with the renminbi. Do you think Western sanctions on Russia, especially on financial transactions, will aid China’s attempt to turn the renminbi into a global reserve currency and to de-dollarize the global economy?

Rudd: No. Ukraine is causing the Chinese central bank to have higher levels of anxiety about where this geopolitical reconfiguration goes in terms of the receptiveness of international markets to two critical Chinese questions. One involves the liberalization of China’s capital account. The second involves the convertibility, either through a dirty float or a genuine float, of the renminbi or Chinese yuan on foreign-exchange markets.

My judgment is that, until now, the Chinese authorities were moving toward intensifying the economic and financial decoupling of the United States from China. But prior to the Ukraine, China was still finding it very difficult to bite the bullet on liberalization. It was waiting for the day when Chinese financial markets, financial institutions, and foreign dependence on them would be big enough to offset any possible sanctions against China or manipulation of a tradeable renminbi on foreign exchange markets that might come in the event of a future geopolitical crisis, such as one over Taiwan.

Now the Ukraine crisis has hung a lantern on all these problems earlier than China wanted. As a consequence, the transition for China will be much harder. My view was that China was moving to liberalization by the end of this decade. But rather than make that easier, Ukraine has placed an enormous spanner in the works.

OR: You just mentioned Taiwan. How do you think Putin’s invasion of Ukraine has affected Chinese calculations regarding an invasion?

Rudd: Most of the analysis of the lessons of Russia’s stalemate in Ukraine for China have been fairly banal. China’s strategic thinking about Taiwan has been proceeding on its own tracks for at least the last decade, if not longer. And that thinking has been driven by one set of considerations, which is, when does China believe it will have a sufficient balance of military power in the Taiwan straits, East Asia, and the West Pacific to guarantee a military victory? I’ve always argued that China is unlikely to act on Taiwan militarily in this decade, but is more likely to do so in the decade to come.

The other factor on China’s mind is the one we’ve just discussed, namely its ability to withstand the financial and economic sanctions that would inevitably flow from the rest of the world if China moved on Taiwan. Beijing’s calculus was that, by the end of this decade, China’s financial system, Western dependency on Chinese financial markets, and the dominance of the Chinese economy would be such that China could comfortably withstand the external economic reprisals that would result from military action. This line of thinking is causing the Chinese analytical community to look very carefully at the level of financial and economic preparedness they would need before launching an invasion. But those who infer that Russia’s action in Ukraine is either rapidly advancing or rapidly retarding China’s predetermined timetable for action against Taiwan fail to understand how these matters are actually deliberated in Beijing.

OR: What then do you think are the key lessons that China is drawing from this episode?

Rudd: The key lesson is this: there’s always a problem when Marxist-Leninists believe their own bullshit. By which I mean, the Marxist-Leninist ideological analysis of the global correlation of forces between China and the United States over the last decade has been summarized by Xi Jinping’s aphorism, the rise of the East and the decline of the West. That has become part of China’s domestic political mantra. And it’s been based, not just on the relative decline of the United States’ material, economic, military, and technological power vis-a-vis China, but on China’s view of the incoherence of the American political system and the perception that the West collectively had lost its political resolve.

Now I think China’s big learning is that, rather than the Russian invasion of Ukraine producing shock and awe in Western Europe, NATO, and the European Union—and causing them to sue for terms—Ukraine has had the reverse effect: it’s acted as a remarkable unifying factor and builder of resolve in NATO and the European Union. That presents an enormous analytical conundrum for China’s Marxist-Leninists, as their thesis over the last 10 years was that China was inexorably moving toward a position of regional and global dominance.

OR: How should Western policy toward China shift to reflect recent events? Do you think there’s anything that Western governments can do right now to capitalize on misgivings about Russia that China may be feeling, and to nudge Beijing away from Moscow?

Rudd: I think there’s a lot of misguided strategic thinking in the United States and the West about the ability to nudge Beijing away from Moscow. China’s closeness to Russia has been building for 30 years, and has been intensified in the last 10 years under Xi. Ukraine will be seen as a significant problem, but not one that fundamentally unravels Beijing’s broad strategic condominium with Moscow.

The reverse proposition was, was there an opportunity to reduce Russian dependency on China? That became less probable after 2014 and totally impossible in recent years, as Putin progressively accepted Russia’s de facto secondary status and Russia’s geopolitical and economic reliance on China. I do not think that these two dynamics are capable of alteration, given how far they have come. There may be some amelioration of them at the margins, but not fundamentally.

The key question for the West now, as it looks at the future, is this: what would a Chinese-led international system or global order actually look like, and given that, how important is it for the democratic world to rally behind the existing liberal international order? I think that looking carefully and strategically at the alternative on offer will have a very sobering effect on the way the democratic world thinks about the future of the global order.

This interview has been edited for length and clarity.

Substack just introduced a new app that should make reading this and other newsletters easier. Download it here: