Xi's Biggest Mistake: Falling into Putin's $130 Billion Investment Trap || Digging into China

Hi, I'm Dong Shan. Welcome to Digging into China, where we explore China in depth to review unique perspectives. The trade conflict between the United States and China has largely lost its intensity. Recently, US Treasury Secretary Bessant expressed satisfaction with the current state of bilateral trade, noting that China has become the largest source of tariff revenue for the US government. Estimates suggest that China will contribute at least $100 billion in tariffs to the US this year. Securing such a substantial sum from Shi Jinping, the foolish heir of a wealthy estate, has clearly pleased Trump. History, however, teaches us that when China faces international challenges, Russia often seizes the opportunity to exploit the situation. This trade dispute with the US is no exception. Frankly, Russia shows little regard for Xi Jinping. Exploiting a partner's difficulties discreetly might be one thing, but Russia chooses to do so openly, leaving she with little dignity. Just days ago, Russia's industry and trade minister Anton Ali Khanov delivered a brazen speech at the Russia China Mutual Benefit Cooperation Forum. He declared that trade between Russia and China will only decline moving forward as Russia adopts a Russia first policy to boost its domestic manufacturing. For Chinese goods to continue entering the Russian market, China must invest in building factories there. Russia has conveniently prepared a list of desired factories requiring an investment of roughly $100 billion. Coincidentally, about the same amount that China is paying in US tariffs this year. Isn't this blatant opportunism? Given Russia's relatively small market, demanding over $100 billion in investments is audacious. Recovering such a massive investment would take years, if not decades, making it a little different from outright theft. In truth, Russia poses China's greatest threat. In this video, we'll explore the Russia China trade conflict that could inflict significant losses on China. Xiinping's loyalty to Russia is almost admirable. With the Russia Ukraine war erupted in 2022, Western sanctions crippled Russia's energy sector. Despite the risk of US sanctions, she stepped in supplying Russia with industrial goods and purchasing vast quantities of Russian energy. This support enabled Russia to sustain its efforts in Ukraine. As a result, trade between China and Russia surged by 29 and a half% in 2022 and grew another 26% in 2023. Yet, starting in 2024, this growth abruptly stalled. In the first half of this year, trade volumes contracted for the first time in a decade. With both exports and imports declining, there must be a reason. Wars are costly. And with Russia still engaged in Ukraine, its expenses are enormous. Nearly all of Russia's industrial goods come from China. So trade should logically be increasing, not decreasing. The explanation is a straightforward. Putin is prioritizing a Russia first agenda. He aims to prevent Russia's manufacturing sector from being overwhelmed by Chinese imports, adopting a strategy reminiscent of Trump's. His approach mirrors Trump's almost exactly. First, Russia imposed the tariffs on Chinese goods. Take the automotive sector. In the first half of this year, China's car exports to Russia plummeted by 59%. Last year, China exported 417,000 vehicles to Russia. This year that number fell to 171,000. Why? Russia not only levied the tariffs on Chinese cars but also introduced a recycling fee exclusively targeting them. By late last year, Chinese cars held a commanding 63% market share in Russia, while Russian brands dwindled to 29%. In January, Russia doubled the recycling fee on Chinese cars to $7,500 per vehicle with plans to increase it by 10% to 20% annually for the next 5 years. This has effectively choked off China's auto exports to Russia. Putin's Russia first policy is arguably more aggressive than Trump's Make America Great Again, leaving China with little room to compete. Putin's second tactic is to entice Chinese investment. He seeks both China's capital and its technology. Russia's manufacturing lags behind China's by at least two decades, unable to produce many components independently. Without the China's support, Russia's military industry would have collapsed. Yet, Putin isn't satisfied with merely importing from China. He wants Russia's manufacturing to thrive. His solution emulate Trump's strategy of attracting investment. Russia has compiled an extensive list of industries, metallergy, chemicals, radio, electronics, automotive, pharmaceuticals, where it expects China to establish factories. The total investment demanded over $130 billion. However, Russia's state development bank has committed only less than $43 billion for joint ventures, leaving China to cover the majority. Isn't this rather exploitative? Contrast this with China's deal with Tesla in Shanghai. Tesla's Elon Musk invested nothing. China provided the land and factory cost, essentially gifting him a gigafactory. But the China's market is vast while Russia's consumer base is roughly a tenth of China's comparable to a single developed Chinese province. Yet Russia demands that the China supply both funds and the technology to develop its manufacturing. This audacity surpasses even China's own bold moves. Putin is taking full advantage of Shei. If she yields and hands over $100 billion to Putin, he risks plunging China into a precarious situation. Investing in Russia is fraught with peril as Chinese companies have learned at great cost. Consider the legal and policy risks. Russia's legal system, much like China's, is unreliable. Years ago, companies from Halong Jang invested in timber processing in Russia's far east, securing long-term logging contracts. Within a few years, local Russian authorities unilaterally voided those contracts, rendering factories and equipment worthless. China's state oil company CNPC partnered with Russia on the East Siberia Pacific Ocean Pipeline, investing heavily upfront. Russia repeatedly alter the settlement terms, forcing China to accept unfavorable prices. Russia's tactics are frankly more ruthless than China's. They lure investors with promises only to seize profits through dubious means once projects are operational. With such high policy risks, Russia is an unwise investment destination. Putin's latest demand for $100 billion to build factories follows the same pattern. Once factories are established, technology transferred, and the supply chains built, Russia is likely to find an excuse to push Chinese investors out. When the Russia Ukraine war began, numerous multinational companies, including some from China, had their assets confiscated by Russia. Despite China's neutrality, these its companies were not spared. Russia's behavior is akin to that of a bandit state. After the war started, Russian banks were expelled from the Swift system, disrupting crossborder payments. Some Russian firms used this as an excuse to default on payments to Chinese exporters, causing significant losses. Many Chinese companies were forced to exit the Russian market, absorbing the losses. Beyond the policy and the market risks, Russia presents financial risks. Its market is a small and not worth the investment. Prudent investors would steer clear if she driven by a superficial international bond that commits $100 billion to bolster Russia's manufacturing. He would be making a grave mistake, potentially earning a legacy of infamy. Russia's economy is now a wardriven machine with over half its budgets, more than 40% allocated to military spending, crowding out education, health care, and public welfare. What purchasing power does such a country have to absorb China's manufacturing investments? If she invests $100 billion, it won't be to tap a market. It will be to prop up Putin's war efforts. Russia's economy may appear sustained by its military and energy sectors, but its civilian industries are contracting. Inflation remains high, domestic demand is shrinking, and its currency excluded from Swift relies on China's yen for international transactions. What value does such a market offer for investment? Some may argue that with Trump mediating the Russia Ukraine conflict, peace could allow Russia to rebuild its economy. This is misguided. Russia's recurring aggression stems from its inability to develop economically without external plunder. Its economic structure is fundamentally flawed. As a quintessential energy state, Russia relies on oil and gas for over half its fiscal revenue. Peace is not in its interest. Low oil prices during peace time hurt while war drives prices up. Even if the Russia Ukraine conflicts ends, Europe's commitment to phasing out Russian energy will limit Russia's exports. As long as energy prices remain low, Russia's economy will struggle. Moreover, Russia has suffered irreversible losses of population and capital over the past 3 years. Soldiers lost in battle cannot return. Nor will skilled engineers who fled come back post war. Foreign assets in Russia have been seized by Putin, erasing decades of investment. No rational investor would return. A market lacking people, capital, and credibility has little hope of recovery. Conversely, Ukraine is poised for rapid postwar growth backed by Western resources. After the war, Russia China relations may deteriorate further. During the conflict, Russia relies on China's industrial goods, but the postwar, Russia will prioritize repairing ties with the West to lift sanctions. China's interests could become a bargaining trip for Putin to gain favor with Trump. Unable to exploit the West, Russia will likely target China. Plunder is how Russia survives. China's real concern should not be US tariffs but the investment trap. Putin is the setting for sheep. The US China trade war involves a transactional logic. China pays tariffs but it retains access to the world's largest consumer market. The Russia China trade conflict is different. Putin's demand for $100 billion is a political shakeddown exploiting she's loyalty. China stands to gain nothing, losing money, technology, and potentially becoming a pawn in Putin's overtures to Trump. Those who focus solely on criticizing the US are missing the bigger picture. Historically and today, Russia, not the US, poses the greatest threat to China. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. It really helps YouTube suggest my video to others. I'll be back with more content soon. Until then, be well.