Provider of in-depth & balanced analysis on hot issues around the world

​Although the dollar continues to be the dominant global currency, Russia and China could dent this dominance. In the aftermath of global financial exclusion, Russia has had to make some strategic adaptations. The West’s sanctions had crippling consequences, and the Kremlin scrambled to find alternatives. In light of these developments, China became an important ally, and the Yuan—its currency—has taken on a more prominent role. It is telling that in Russia, the yuan has surpassed the United States Dollar (USD) in trading volume, a feat achieved a year after the Ukraine conflict, which triggered a series of sanctions against Moscow. As Russia and China band together, one wonders what other shifts will take place and how they will shape the future. Change is afoot, and the Russian market bears witness. The month of February saw a watershed moment as the yuan surged past the dollar in monthly trading volume for the first time. The momentum continued into March as the gap between the two currencies widened, showcasing the growing sway of the yuan. It’s an impressive feat, considering that the yuan’s trading volume on the Russian market was once quite insignificant. The winds of change blew through Russia’s financial system as the year progressed. Additional sanctions had taken their toll on the few remaining banks that still held power to make cross-border transactions in the currencies of countries that had been deemed “unfriendly” by the Kremlin. One such bank was Raiffeisen Bank International AG, whose Russian branch played a significant role in facilitating international payments within the country. However, the lender found itself under the watchful eye of both European and US authorities, which only added to the pressure. These events spurred the Kremlin and Russian companies to shift their foreign-trade transactions to currencies of countries that had not imposed sanctions.Converging coalitionsThe bond between Russia and China is growing stronger, with both nations seeking to bolster their positions on the global stage. Their alliance has spread across various spheres: military, economic, and political. With relations between Russia and the West crumbling, China has emerged as a key partner for Russia, providing it with the necessary support to counter economic and political pressure. On the other hand, China is keen on expanding its global reach, especially in the Eurasian region, and sees Russia as an important ally in this regard. President Xi Jinping’s recent visit to Moscow and his pledge to expand cooperation are likely to take this partnership to greater heights. Trade and investment ties are set to grow stronger, with both nations seeking to reduce their dependence on Western economies. Russia’s focus on infrastructure development and mega projects is also likely to benefit from China’s expertise in these areas. Energy is another significant area of collaboration, with Russia being a leading exporter of oil and gas and China being the world’s largest importer of these resources. Technology is also an essential domain, with both countries investing heavily in research and development to remain competitive in the global economy. While the alliance between Russia and China will likely have far-reaching geopolitical consequences, it is a complicated relationship with both nations pursuing their interests, even as they work towards common goals. As a result of Western sanctions, Russia has shifted its foreign trade transactions away from the dollar and euro to currencies of non-restricted countries. By doing so, the Kremlin and Russian companies hope to decrease their dependence on the Western financial system and explore new avenues for conducting their trade and economic activities. This shift in strategy reflects Russia’s determination to maintain its economic stability despite restrictions on its access to the global financial system. It also underlines the growing importance of alternative currencies in global trade as countries strive to minimise the impact of sanctions and safeguard their economic interests.Structural overhaulsThe Russian Finance Ministry was not immune to the winds of change either. Earlier this year, it made the switch from the dollar to the yuan for its market operations. It even went a step further by devising a new structure for the national wealth fund, earmarking 60 percent of its assets for the yuan. The Bank of Russia joined the chorus, urging its people and businesses to consider moving their assets to the rouble or other currencies considered “friendly.” This would help mitigate the risk of having their funds blocked or frozen. As the world undergoes a seismic geopolitical shift, it seems Russia is moving in tandem, searching for ways to secure its economic future. However, the dollar still reigns supreme in the Russian market. Even with all the changes taking place, it remains the most widely used currency, ceding its throne only occasionally to the yuan. This underscores the enduring dominance of the dollar, which has played a significant role in Russia’s financial landscape for years. However, as the world continues to evolve, one wonders how long it can hold on to its crown.

The meeting of Russian President Vladimir Putin and Chinese leader Xi Jinping in Moscow helped both give the impression of a united front, but underlying tensions were also discernible. What did the summit achieve for each side?With the pomp of a state visit, Russian President Vladimir Putin and Chinese leader Xi Jinping shined a spotlight on their ­growing strategic alignment, which is aimed at upending the U.S.-led, rules-based international order in favor of a multipolar world. Long on symbolism, short on concrete substance, the summit nevertheless served both leaders’ purposes. Putin welcomed the demonstration that Russia was not, and could not be, isolated on the world stage, as it deepened relations with one of the world’s two superpowers. By showcasing burgeoning commercial ties and unveiling plans to expand them, Putin conveyed confidence that Russia can remain resilient in the face of harsh Western sanctions.      Meanwhile, Xi’s decision to make Moscow his first foreign visit of his third term as president underscored his strong commitment to Russia and to Putin personally. He used the summit to underscore China’s determination to pursue its national interests in defiance of mounting U.S. economic and diplomatic pressure—making the point that China will not abandon its strategic partner in pushing back against U.S. pretensions to global leadership. That was a crucial message for his increasingly nationalistic domestic audience, as well as for the Global South, where the U.S.-led liberal order is under stress. At the same time, Xi subtly let it be known that China is the dominant partner. Putin had little choice but to accept Xi’s proposal that Russia use the yuan, not the ruble, in trade with the Global South to diminish the role of the U.S. dollar in world trade. Xi also gratuitously endorsed Putin for reelection in 2024, even though the Russian president has not declared his intention to run. And at the joint press availability at the end of the summit, Xi was much more restrained in his description of bilateral relations than was Putin, who was eager to lay out all the areas in which the two countries would enhance cooperation in the years ahead. That left the clear impression that Russia needed China much more than China needed Russia.What does the summit mean for the war in Ukraine?Nothing at the summit suggested that the underlying dynamic in the war was about to change. As expected, Beijing continued to provide Moscow with strong diplomatic support, echoing the latter’s narrative blaming the North Atlantic Treaty Organization (NATO) for the conflict. Despite Washington’s fears, however, Xi gave no indication that China was ready to provide lethal military aid that might radically improve Russia’s chances on the battlefield. Putin noted that China’s recently released 12-point peace plan could serve as a basis for negotiations, but neither he nor Xi suggested any practical steps that might give substance to what is largely a list of bromides about respecting sovereignty, avoiding escalation, and seeking a diplomatic solution. The reality is that China benefits from the military stalemate. Russia’s aggression distracts U.S. attention and resources from the Indo-Pacific region, while Western sanctions compel Russia to turn to China as an economic lifeline. China exploits Russia’s predicament to gain access to critical natural resources, especially oil and gas, at discounted prices.  In line with this calculus, Xi provided Putin with sufficient moral and material support so that he could continue the fight, but much less than needed to give Russia the advantage. At the same time, the Chinese continued to drive hard commercial bargains. Notably, no deal was announced to build a second Power of Siberia gas pipeline, which Putin has described as “the deal of the century.” Rather, it was simply noted that further details needed to be negotiated, as China explores alternatives.What does it reveal about the underlying tensions between China and Russia?Except for a brief period after the Communist takeover of China in 1949, China and Russia have been rivals, not partners. Until the end of the Cold War, Russia was by far the superior power.   The dynamic changed dramatically after 1991. Then, the two countries’ economies were roughly the same size. Now, China’s economy is ten times larger, and the gap continues to widen.  Moreover, China now casts a much larger shadow on the global stage: it has overtaken Russia in the development of advanced technology and its conventional military is comparable to Russia’s, even as it is moving toward nuclear parity with both Russia and the United States. What once could have been seen as a roughly equal partnership has evolved to the point where Russia is decidedly the junior partner. Despite the rhetoric of comprehensive partnership and avowals from Putin and Xi that relations have never been better, this asymmetry in power and ambition is in itself a source of friction, in addition to the civilizational clashes, racial prejudices, territorial grievances, and geopolitical competition that have strained relations in the past. But these sources of tension are currently far outweighed by the shared challenge from the United States. Washington’s current policy of dual containment only reinforces their strategic alignment and pushes the tensions further into the background.

AnnotationThe article is devoted to the analysis of Japan’s policy amidst growing competition between the United States and China in the Indo-Pacific region. It assesses the Japan’s place in US strategy to contain China in the economic and political spheres. Particular attention is paid to the events that took place in 2021, the first year of the Biden administration in the US.  The Biden administration, which came to the White House on January 20, 2021, immediately announced a course of rivalry with China. In his very first foreign policy speech, the 46th President of the United States called the PRC the most serious rival of the United States, declared his desire to rebuff "the growing ambitions of authoritarian China, challenging American leadership". The U.S. Interim National Security Strategy Guide, published in March 2021, called China “the only competitor with the potential to combine its economic, diplomatic, military, and technological might to mount a sustained challenge to a stable and open international system”. The Biden administration's course of confronting Beijing also included countering Chinese illegal trade practices, cybercrime, and countering Beijing's so-called coercive economic measures that undermine the competitive advantage of the American economy. At the same time, Joe Biden, unlike his predecessor D. Trump, who pursued a policy in the spirit of “America first”, promised to rely on allies and partners in the implementation of his international policy. The Interim Strategic National Security Guide of the United States called the American allies “the most important strategic resource”, allowing them to act as a united front against global and regional rivals, including China. The United States promised to reaffirm and strengthen its commitment to alliances in Europe and the Indo-Pacific region, and to encourage allies to develop their military and political capabilities to counter common current and future threats. Japan, the most important military and political ally of the United States in the Indo-Pacific region (ITR), supported Joe Biden's course of rivalry with China on a wide range of issues. At the same time, the growing competition between Washington and Beijing is challenging Tokyo's national interests, forcing it to revise the key parameters of its economic and foreign policy strategy and adapt it to changing international political conditions.Military-political sphereIn 2021, Japan began coordinating its PRC strategy with the new American administration. On March 16, Tokyo hosted the first meeting of the new heads of the US Foreign and Defense Departments — A. Blinken and L. Austin — with their Japanese counterparts, which took place in the 2+2 format. Following the meeting, the parties stated that China's activities in the political, economic, military and technological spheres pose a challenge to the Japan-US alliance and the entire world community when they do not comply with the existing international order. The ministers announced their determination to resist Beijing's actions if they put pressure on regional players or destabilize the situation, which undermines the "rules-based" international system. During Biden's first Japan-US summit in Washington on April 16, 2021, the parties expressed concern about China's behavior that violates international order, including the use of economic and other forms of coercion. In addition, J. Biden and Y. Suga spoke out against China's territorial claims in the South China Sea, and also expressed concern about the human rights situation in Hong Kong and the Xinjiang Uygur Autonomous Region of China. For the first time in 52 years (since 1969), the leaders of Japan and the United States mentioned the "Taiwan issue" in a joint statement: they declared the importance of peace and stability in the Taiwan Strait and expressed concern about the current situation around Taiwan. A desire was declared to develop cooperation between Washington and Tokyo on the basis of universal values and common principles. The parties also stressed the need for deterrence to maintain peace and stability in the region. At the same time, J. Biden and Y. Suga noted that it is important to have a frank dialogue with Beijing, directly express their concerns and work with it on topics of interest. The United States remains Japan's most important military and political partner, guaranteeing the security of the Japanese state from outside attacks. According to official Japanese government documents, the most serious security threat to Japan is the lack of transparency in the increase in the combat capability of the Chinese military. In addition, China's attempts to change the status quo in the East China and South China Seas pose a threat to Japan. There is particular concern about China's activity around the Senkaku Islands in the East China Sea, which threatens Japan's sovereignty over the islands. In addition, the development of the DPRK's nuclear and missile programs is considered a security threat to Japan. Tokyo is concerned about the significant progress made by Pyongyang in the development of a new type of ballistic missile. On these most sensitive issues, Tokyo is seeking guarantees from Washington to ensure its security. The growing confrontation between the US and China in the international military-political sphere poses new challenges to the alliance between Japan and the US. In the 2010s - early 2020s. with the active assistance of the Japanese government, military cooperation between Tokyo and Washington has expanded markedly. The change in the interpretation of the Constitution by the government of S. Abe in 2013 allowed Japan to apply the right to collective self-defense in limited cases. The Japanese Self-Defense Forces gained the ability to come to the aid of their allies in joint operations outside the Japanese islands. As a result, the scope of the Japanese-American alliance has expanded virtually to the whole world. The creation in 2015 of the Coordinating Mechanism between the armed forces of the two countries is aimed at strengthening cooperation between Tokyo and Washington in the military sphere. It was used to monitor the situation on the Korean Peninsula during the escalation of tensions in 2017. In addition, Japan increased the volume of purchases of American weapons, including F-35 aircraft, SM3 ballistic missile interceptors, RQ-4 Global Hawk long-range unmanned reconnaissance aircraft, Osprey convertiplanes, E-2D Advanced Hawkeye AWACS aircraft, etc. Tokyo's more active involvement in the confrontation between Washington and Beijing is supported by some American political experts. In recent years, there has been an increase in the number of publications substantiating the important role of Japan in the US strategy in the Indo-Pacific region. It is noted that during the years of D. Trump's presidency, the United States refused to participate in a number of global and regional multilateral initiatives, undermining its credibility as the leader of the liberal international order. At the same time, it was Japan that assumed the role of a conductor and defender of liberal values in the IPR. As S. Smith, senior fellow at the American Council on Foreign Affairs, notes, along with maintaining an unshakable commitment to an alliance with the United States, Japan has acquired a more prominent role in international coalitions in the ITR in recent years. This is evidenced by its participation in naval exercises with the United States, Australia, India, and others. Further involvement of Japan in the US-Chinese confrontation on the side of the United States will require Tokyo to build up its military potential and increase its defense budget, strengthen coordination between its three types of armed forces, between the armed forces of the United States and Japan, as well as the unification of their commands. Such changes in Japan's military sphere will require further modifications of its defense legislation, including a revision of the restrictions imposed by the anti-war Article 9 of the Constitution. Although part of the political elite, including members of the ruling Liberal Democratic Party and former Prime Ministers S. Abe and Y. Suga, advocates the need to revise the Constitution and further expand Japan's military capabilities, about half of the public still does not support this course and adheres to pacifist views. In the short term, radical changes in Japan are unlikely, which will impose restrictions on Japanese-American cooperation in the military sphere. As for relations between Japan and China, during the period of D. Trump's administration in the United States, there was limited convergence on economic and political issues between Tokyo and Beijing in 2017-2019. The visit of Prime Minister S. Abe to Beijing in 2018 gave an impetus to the expansion of economic interaction between the two largest Asian economies. China and Japan signed 52 agreements totaling about $18 billion, announced plans to cooperate in third countries in the field of infrastructure construction, agreed to cooperate in the field of innovation development and intellectual property protection, renewed a $30.4 billion currency swap agreement, expressed the need to jointly develop free trade regimes in the region. Tokyo and Beijing have taken steps towards each other in the field of regulating tension in the East China Sea. The parties reaffirmed their long-standing intention to turn the East China Sea into a "sea of peace, cooperation and friendship" and agreed to prevent the emergence of dangerous situations at sea and in the air. On December 28, 2021, Japan and China again announced their intention to open a “hot line” between military departments to monitor the situation in the East China Sea around the Senkaku Islands, the sovereignty over which is disputed by Beijing. In the military-political sphere, serious contradictions remain between Japan and the PRC, including the territorial dispute, the problem of historical memory, as well as competition for influence in the IPR. At the same time, Tokyo maintains channels of communication with Beijing and its own agenda of bilateral relations. According to R. Sahashi, a Tokyo University researcher, Japan's task in its relations with China since establishing diplomatic relations in the 1970s has been to involve China in the international political order through the development of bilateral economic relations while maintaining its alliance with the United States. Japan's response to the current intensification of confrontation between the United States and China has been to increase cooperation with the United States in the military-political sphere and in the field of economic security, as well as the development of interaction with countries that share views with Tokyo on a preferred international order while maintaining diplomatic relations with China. Japan's long-term interest lies in the creation in the IPR of certain institutions in the field of economy, politics and security, which should lead to the formation of an order based on universal values.Trade and economic sphereIn 2021, the policy of the Joe Biden administration in the trade and economic sphere in the Indo-Pacific region was in the process of formation. Many of D. Trump's measures, primarily in relation to China, have retained their effect. A number of new initiatives were proposed to restore the US position in the IPR, lost during the years of the previous administration. With respect to the PRC, Washington upheld the tariffs imposed by Trump on imports of Chinese products worth about $370 billion (on 75% of exports of Chinese manufacturers to the United States). In addition, sanctions remain against high-tech Chinese companies ZTE and Huawei. In response to US restrictive measures, China imposed 25% tariffs on $110 billion of US imports in 2018. The trade dispute between the United States and China, the active phase of which fell on 2018-2019, led to the signing by the parties on January 16, 2020 of the so-called first phase of the trade agreement. It assumed an increase in Beijing's purchases of American products in 2020-2021. by $200 billion compared to 2017. It also committed China to make progress in enforcing intellectual property rights, remove non-tariff barriers to agricultural imports, and liberalize its financial services sector. The Biden administration continued to insist that China fulfill the terms of the first phase of the bilateral agreement. In October 2021, the new US Trade Representative K. Tai announced her intention to continue consultations with the Chinese side on trade and economic issues, as well as to raise issues such as subsidizing by the PRC government of certain sectors of the economy and special measures to support state-owned enterprises, which Washington is considering in as Beijing's "non-market trading practices". The trade dispute between the United States and China has led to a slowdown in the global economy and world trade, a decline in business confidence and increased uncertainty about future developments. Japan's trade volume in 2019 also decreased by 5% compared to 2018. Japanese exports to China fell by 7%, imports decreased by 3%. China remains Japan's largest trading partner: China's share in Japanese trade in 2018-2019 was 22%, and at the end of 2020 it increased to 24%, while the share of the USA was at the level of 15%. The trade dispute between Washington and Beijing had a negative impact on the economic performance of Japanese multinational corporations (TNCs) with Chinese subsidiaries. Since the US imposed tariffs on Chinese products in 2018, there has been a decline in sales from Chinese affiliates of Japanese TNCs trading with North American countries. Declines in the value of shares on the exchange (Nikkei 225 Index) were recorded for Japanese TNCs, whose operations are related to trade between the US and China. The share price of TNCs, whose Chinese subsidiaries had a higher share of imports from Japan, fell most noticeably. This is because, as sales to the US fell, the volume and value of imports from Japan also fell, resulting in a decline in the share price. To avoid an increase in the negative effect of the trade war, some Japanese corporations were forced to transfer production. So, Mitsubishi Electric in 2018-2019 moved part of the production of semiconductors and equipment for customers from the United States to Japan. Other companies have increased the capacity of their plants in North America and Southeast Asia. Electric motor maker Nidec Corporation moved production to Mexico in October 2018, Ricoh moved printer production to Thailand, and Sharp moved some laptop production from China to Vietnam. Washington’s course to confront Beijing in the economic and technological spheres in 2021 was supplemented by an initiative aimed at reducing the dependence of the US economy on high-tech products made in China and reformatting existing supply chains with the possible exclusion of China from them. In February 2021, Washington announced its intention to encourage the transfer of production of critical products from China to the United States and allied countries, including Japan, South Korea, Taiwan, Australia, and India. At the same time, special attention in the United States is paid to the production of semiconductors, an industry that is one of the key drivers of global economic growth. The semiconductor shortage in 2021 exposed the vulnerability of existing supply chains and undermined the global production of cars, computers and electronics. On June 8, 2021, the U.S. Senate passed the Innovation and Competition Act, which provides $250 billion for the development of the semiconductor, quantum computing, and artificial intelligence industries. 52 billion of them is planned to be directed to expanding the production of semiconductors in the United States. The purpose of this bill is to increase the competitiveness of the United States in the technological competition with China, where as part of the "Made in China 2025" strategy, the amount of state support for semiconductor-producing companies is stated to be 1.4 trillion dollars. The Japanese government is also taking steps to reduce dependence on China. According to Japanese expert A. Furuse, Tokyo realized the need to diversify its supply chains as early as 2010 after the escalation of tensions around the Senkaku Islands in the East China Sea caused interruptions in the supply of rare earth metals to Japan from China. Today, when the whole world is facing supply disruptions, the importance of cooperation between allies and partners in high-tech industries is increasing. Partner countries will be able to reduce the risks of dependence on China, share the financial burden on research and development, and take their industrial cooperation to a new level. On June 4, 2021, the Government of Japan released the "Semiconductor and Digital Industries Strategy" covering activities in three sectors: semiconductors, digital infrastructure, and digital industry. It states that ensuring the security of production and supply of semiconductors is an issue directly related to economic security in the face of technological competition between the United States and China. To this end, Japan will promote joint development with advanced foreign manufacturers. Another document released by Japan's Ministry of Economy, Trade and Industry on June 29, 2021 said that with the rivalry between the US and China intensifying, Japan should diversify its suppliers and cooperate with the US and other countries to protect supply chains. It also emphasizes the need to take measures to prevent the leakage of sensitive technologies from Japan. Another important issue is the prospects for the participation of the US and China in multilateral trade formats in the ITR. Now China's share of international trade in the region far exceeds that of the United States. On November 15, 2020, the Regional Comprehensive Economic Partnership (RCEP) was signed and entered into force on January 1, 2022 for ten countries (Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand and Vietnam). In the absence of India, which pulled out of negotiations in early 2020, China is taking the lead in this world's largest free trade zone, covering 30% of the world's population. After the United States withdrew from the Trans-Pacific Partnership (TPP) in 2017, the remaining 11 countries participating in the negotiations entered into a new agreement called the Comprehensive and Progressive Agreement on the Trans-Pacific Partnership (CPTPP). Japan, after the withdrawal of the United States, took the place of the leader of the association and thereby guaranteed itself participation in the formation of rules and norms for conducting trade and economic activities in the region. In September 2021, China applied to join the CPTPP. Although many are skeptical about the prospects of China's participation in the CPTPP, China's share in the trade of all its members already exceeds that of the United States. The accession of the United States to the CPTPP in the near future is also unlikely, primarily for domestic political reasons. Nevertheless, in 2021, the Biden administration made an attempt to return to the discussion of trade and economic issues in the IPR on a multilateral basis. Speaking at the East Asia Summit (EAS) on October 27, 2021, which was held online, Biden announced the initiative to create the Indo-Pacific economic framework. According to him, its activities will be aimed at facilitating trade procedures, setting standards for the digital economy and technologies, strengthening the sustainability of supply chains, decarbonization and development of clean energy, infrastructure development, improving labor standards, and so on. But this initiative, unlike multilateral free trade agreements, will not be binding, it does not include trade and investment liberalization goals, and it does not guarantee preferences in the attractive US market. These circumstances will reduce the value of the American proposal for the IPR countries in comparison with the already existing multilateral formats. Washington's unwillingness to participate in free trade agreements in the IPR reduces the involvement and influence of the United States in the rules and norms of trade and economic activity being developed here. In turn, Beijing, the leading trading partner of most regional economies, during the 2010s put in significant efforts in creating its own international institutions designed to strengthen the influence of the PRC on international economic relations and at the same time increase independence from external rules and norms. Under these conditions, Japan sees its task as the formation of a multifaceted trade and economic system with unified rules and norms in the ITR, which will be able to not only balance China's growing influence but also create a liberal economic order that both China and the United States will be forced to reckon with. Thus, Japan hopes that its multilateral trade policy will be able to limit the unilateral actions of Beijing and Washington and reduce the potential negative effects of the trade war between China and the United States on the national and global economy.