The X(i) Factor

Last month, in “War Drums,” I suggested that whatever Vladimir Putin intended to do in Ukraine, he’d be cautious not to run afoul of Xi Jinping.

China is Russia’s most important strategic partner and, crucially, Moscow’s only “friend” among the permanent members of the Security Council. In the event of a Western economic blockade that prompts coordinated action from America’s allies in the Pacific, Beijing would be Putin’s only life raft, unless you count Tehran or Damascus.

Behind the staged photoshoots and juvenile Putin memes is an aging autocrat presiding over a hopelessly corrupt, hollow system that rests shakily atop a rickety economy run by a cartoonish oligarchy. That’s the (exceedingly unfortunate) reality. Putin’s Russia is, in essence, the mafia fashioned as a nation-state. It has energy, nukes and culture, all of which have been hijacked by one man.

Whatever you want to say about Xi’s China, it’s not that. China is rising. Russia is in decline, and unlike the US, that decline may be terminal.

The demise of American empire is a slow, but unmistakable diminution, evidenced in, for example, glacial de-dollarization and a steady erosion of trust, exacerbated by one misbegotten military adventure after another, and, most recently, an ill-fated experiment with soft autocracy. Pax Americana is ending. But America isn’t. By contrast, Putin risks relegating the nation with which he’s made himself synonymous to pariah state status. He is the existential threat to his country, not NATO. His decision to invade Ukraine started the clock on his own demise. If Russia can’t manage to free itself from the personality cult it’s become, its power and whatever prestige it still has could be lost forever.

I’ll dispense with the obvious on Friday: There are no guarantees when it comes to what Putin might do next. One defining feature of desperation is unpredictably. Something about “cornered animals.” Kyiv was still under siege as of Friday afternoon, and the future of Ukraine’s government remained uncertain.

That said, you didn’t need to be a political scientist to read between Friday’s headlines. Chinese state television said Xi urged negotiations during a phone call with Putin. Specifically, Xi wants the “Ukraine issue” addressed. And he wants “issues resolved,” not through missiles, but through dialogue. Just hours later, Putin indicated he was ready to send a delegation to Minsk for talks. The Kremlin attributed Putin’s receptiveness to “signals received” from Volodymyr Zelenskiy, who’s apparently open to adopting a neutrality stance. The reference was to comments from Zelenskiy’s Thursday speech, during which he said Ukraine was “not afraid to talk about neutral status.”

As of Friday afternoon, though, we were “a long way from neutral,” to co-opt Jerome Powell’s most infamous communications faux pas. Kyiv was “blockaded from the west” (according to the Russian Defense Ministry), the Ukrainian military blew up a bridge in an effort to halt the progress of advancing Russian tanks (according to multiple media reports), the Ukrainian Ministry of Defense told citizens to make petrol bombs to use against “the occupier,” a US official said “thousands” of Russian troops were conducting “an amphibious assault” on Mariupol and the EU was reportedly on the brink of freezing Putin’s assets, as well as those of Sergei Lavrov.

Amid the melee, one story stood out. Around 10 AM EST, Bloomberg reported that ICBC and Bank of China had stopped issuing USD credit for purchases of physical Russian commodities. Yuan-denominated letters were still available for “some clients,” sources said, but noted that even those were “subject to approvals from senior executives.”

There was no indication that the moves were triggered by guidance from Chinese regulators, but those are (obviously) state-controlled banks. Bloomberg was careful to note that the precautions may be “temporary” and that the policies may be quickly reversed. Still, the article struck at the heart of the issue.

“The curbs highlight the difficult balancing act facing China’s biggest financial institutions and the nation’s president, Xi Jinping,” Bloomberg wrote, adding that “while Russia is a major energy supplier to China and the countries often find themselves aligned in geopolitical disputes with the US, Russia’s economic weight pales in comparison to Western nations that buy many of China’s exports and control its access to the dollar-dominated international financial system.”

Nothing further.