Russia’s Big China Gamble Just Collapsed | US-China | China’s Massive Surplus

Happy Thursday everybody, welcome to another episode of China Update, where we discuss leading political, economic and geostrategic analysis on the world's number two economy. My name is Tony, it's a big day, a lot to cover, let's jump in. And first up, a proposed summit between US President Donald Trump, Chinese leader General Secretary Xi Jinping and Russian leader Vladimir Putin faces uncertainty as Washington and Beijing clash over its format. Exposing competing priorities ahead of next week's Asia-Pacific Economic Cooperation, APEC, gathering in the southern Chinese megacity of Shenzhen. Beijing wants a tightly controlled meeting built around prepared statements with an agreed agenda and a predetermined outcome, according to reporting by Lingling Wei of the Wall Street Journal. The Trump administration favors a more open exchange, allowing the leaders to discuss contentious issues directly. The disagreement could prevent the meeting from taking place on the sidelines of the November 18th through 19th summit, despite initial interest from all three governments. Nuclear arms control is a central obstacle. Trump has said he wants to discuss denuclearization, while Secretary of State Marco Rubio has presented the proposed gathering as an opportunity for talks between the three nuclear powers. China, however, has consistently resisted trilateral negotiations. Its nuclear arsenal remains substantially smaller than those of Washington and Moscow, despite expanding rapidly under Xi Jinping. Beijing fears that joining negotiations could institutionalize that imbalance. A Chinese official told the Journal that China would not agree to participate in such talks. These stakes have increased since new so-called START, S-T-A-R-T, the last major nuclear arms treaty between Washington and Moscow expired in February without a replacement. The Trump administration argues that any successor agreement must include China. For Putin, the proposed summit offers a different opportunity, advancing a settlement of the Ukraine war favorable to Russia, potentially with Chinese support, and without Ukrainian President... Volodymyr Zelensky participating. Beijing is reportedly willing to discuss Ukraine and other major issues, provided the substance is negotiated beforehand. Otherwise, it would prefer to have a separate bilateral meeting. That preference reflects Xi's highly choreographed diplomatic style and the political sensitivity surrounding preparations for the Communist Party's 2027 leadership congress. An unpredictable encounter with Trump and Putin would introduce risks while she manages purges and senior personnel decisions. The summit dispute comes as Washington and Beijing preserve a fragile trade truce while accusing each other of undermining it. Following a November 6 call with Vice Premier He Li-Feng, Treasury Secretary Scott Bessent and US Trade Representative Jameson Greer demanded concrete Chinese action on commitments covering agricultural purchases, rare earths and other critical minerals. We covered this at the time. Besant urged Beijing to implement its Busan commitment immediately. China's account instead highlighted concerns over recent American trade restrictions while describing the discussions as constructive. Both governments nevertheless extended suspensions of several restrictions for another two months. China prolonged pauses covering additional tariffs, port fees and measures against American companies. Washington extended selected tariff exclusions and suspended restrictions involving Chinese maritime industries and affiliates of blacklisted entities into January 2027. Those extensions by negotiating time but leave the underlying disputes unresolved. US officials previously told the UK-based Financial Times that China was fulfilling only around two-thirds of its rare-earth commitments. Trade is expected to receive fuller attention when Trump and Xi meet at the G20 in Miami in December, with economic officials likely to hold talks beforehand. For now, the combination of procedural disagreements, nuclear tensions and contested trade commitments underscores the limits of diplomatic stability. The immediate challenge is whether the leaders can agree on the terms of engagement before attempting substantial bargains. Even a successful photograph in Shenzhen would leave difficult negotiations over security, market access and strategic trust waiting beyond the summit itself. Now next up in speaking of trade tensions, China's trade surplus surpassed $1 trillion in the first 10 months of 2026, setting a record for the period and intensifying concerns among trading partners that its manufacturing strength is coming at the expense of their industries. Customs data showed the surplus reached $1.04 trillion. Trillion US dollars through October, nearly 9% above the $964.8 billion recorded a year earlier. China remains on course to exceed last year's record annual surplus of $1.2 trillion, despite a sharp acceleration in imports. The imbalance with Europe is particularly pronounced. China's surplus with the European Union reached US$310 billion, already exceeding the US$292 billion recorded throughout last year. Its surpluses with Southeast Asia and the United States reached US$293 billion and US$266 billion, respectively, rising approximately 34% and 14%. October exports increased 35.2% from a year earlier, slightly below September's 36.3% expansion and economists' forecasts. Imports jumped 41.6%, their strongest growth since 2021, reflecting higher energy prices and purchases of technology components. That narrowed October's surplus to $105.3 billion, down from $133 billion in September and the smallest since May. However, the imports surge offered limited evidence of a broad recovery in domestic demand, with growth concentrated in commodities and technology inputs. Artificial intelligence investment has become a major driver of trade. High-tech exports rose 66.6%, not a dodgy number at all, in October, while semiconductor exports increased 137%, according to ING chief China economist Lin Song. Across the first 10 months, integrated circuit exports increased 111% by value, but only 3.2% by volume, highlighting the importance of rising prices. Chips and computer parts accounted for approximately 40% of the increase in total export value. Export strength also extended beyond AI hardware. Vehicle shipments rose 50% by volume to 9.74 million units, while solar panels, batteries and industrial robots contributed to broader manufacturing momentum. The growing surplus threatens further friction with Europe, which has imposed tariffs on Chinese electric vehicles and a quota on hybrid imports. Emerging economies are also deploying more trade defense measures against inexpensive Chinese products. Beijing argues that foreign restrictions on advanced technology constrain its ability to import more. Nevertheless, dependence on overseas demand leaves China exposed. City economists warned that any slowdown in American AI investment following the Democrats' midterm election victory could weaken exports. AI-related products represented 28% of Chinese exports during the first three quarters. But domestic demand is still weak. A cooling global technology boom or stronger trade barriers could put an increasingly important engine of China's growth. Under pressure. Now, next up, we have one more development to cover. But as always, if you're getting some value from today's episode of China Update, it's a big help if you can hit the like button. Consider subscribing if you haven't already. And if you'd like to help keep China Update financially sustainable, I rely on your support to keep going. Patreon and Buy Me A Coffee links are in the description below. For everyone who supports China Update, thank you so much. I could not do it without you. And finally for today. Russia's retreat from using China's yuan in export payments is exposing the limits of efforts to escape the dollar-based financial system, as American sanctions pressure forces Chinese banks to restrict dealings with Russian companies. The yuan's share of payments for Russian exports has fallen to 22%, roughly half its mid-2024 peak. According to Russian central bank data cited by U.S.-based Bloomberg, the Russian currency now accounts for 69% of payments for Russian exports to Asia. The reversal follows an extraordinary embrace of the Chinese currency after Russia's full-scale invasion of Ukraine in 2022 triggered sweeping Western sanctions. The yuan rapidly became central to Russian trade, lending, bank deposits, and foreign exchange transactions. China's emergence as Russia's largest trading partner reinforced that shift. Russia also began receiving yuan from buyers outside China, helping extend the currency's international reach beyond Beijing's own trade relationships. But Washington's expansion of secondary sanctions in June 2024 disrupted those arrangements. Facing the risk of American penalties, major Chinese lenders curtailed Russian businesses, leaving payments frozen, delayed or returned. The resulting difficulties demonstrate that setting transactions in the Chinese RMB or yuan does not automatically shield banks from US financial pressure. Chinese institutions remain exposed to the international dollar system and have strong incentives, to put it mildly, to protect that access. Russian businesses increasingly rely on middlemen, payment agents and third countries. Those routes introduce additional costs and uncertainty, even when contracts and counterparts have been checked. Logistics provider STT Logistics estimates that cross-border payment costs with China, including intermediary commissions and fees, now average 15-20% of transaction values. The setback also complicates Beijing's ambition to expand the yuan's global role. Its share of SWIFT payments has slipped behind the Japanese yen, although Chinese officials argue those figures exclude substantial activity through China's CIPS network and internal banking channels. Beijing also maintains tight capital controls and says it does not seek to replace the dollar outright. Russia's experience nevertheless highlights a central obstacle. Alternative currencies cannot easily overcome banks' dependence on dollar-based finance. Political alignment between Moscow and Beijing remains strong, but their financial relationship shows that diplomatic partnership offers limited protection against the reach of American sanctions. Okay, that is today's episode of China Update. Thank you so much, everybody, for watching. Have a good Thursday, and I hope to see you for the next and this week's final episode on Saturday.