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31 May 2023

Russia's economy is at China's mercy. Here's why that won't be changing anytime soon.

JENNIFER SOR

Russia's economy is becoming dependent on China and it could soon be a vassal state of Beijing, experts say.

The two nations have ramped up trade and deepened ties as sanctions isolate Russia from the West.

Russia's economy has been battered by Western sanctions since its invasion of Ukraine last year – and that's putting it increasingly at the mercy of one of its biggest partners: China.

Observers have pointed to Moscow's growing dependence on Beijing for months, with their two economies becoming more intertwined in trade and finance as Russia becomes further isolated. But it isn't an equal partnership, and Russia may be on its way to becoming a vassal state of China.

That assessment comes from French President Emmanuel Macron, and even sources close to the Kremlin have said that Russia is destined to become a Chinese resource colony. While Russian officials dispute that characterization, experts say it has merit.

"To me, Russia is not [a vassal] yet with China, but it's clearly headed there," Jay Zagorsky, a markets professor at Boston University told Insider, pointing to Russia's growing reliance on China as a trade partner. Russia has predicted trade volume with China will notch a new record of $200 billion this year, and other statistics show that Russia will export around 26% of its goods to China, Zagorsky said. That's double the amount before the Ukraine war, when Russia exported only 13% of its goods.

Zagorsky predicts that Russia would be considered a vassal state once imports and exports to and from China reach 50% – making it so reliant on Chinese trade that its foreign interests would be dominated by those of China.

"If China cuts them off, they're like, the west has already cut us off. [They're] basically at the mercy of China. And when you're at the mercy of somebody, they have control over you," he said.

Richard Connolly, an associate fellow at the Royal United Services Institute and an expert on the Russian economy, disagreed with the term "vassal state." Russia's growing trade partnership with China is more of a natural product of sanctions rather than a deliberate decision, Connolly said, and Russia has grown more reliant on other countries for trade as well, like India.

And though Russia has become a resource hub for China, it doesn't necessarily make Russia a client state.

"Although there's an economic asymmetry, that doesn't necessarily translate into political vassal," he said, pointing to Russia's extensive trade with Europe prior to the Ukrainian invasion. "Was Russia a vassal state to Europe over the last 30 years? I would argue yes, and it had a very similar economic relationship to Russia as China does today."
Tit-for-tat partnership

The relationship has benefited both sides, but especially China, which has ramped up its purchases of Russian goods at steep discounts, particularly crude, natural gas, coal, and precious metals. Meanwhile, it's sending huge amounts of manufactured goods to Russia, which has the dual benefit of boosting China's GDP and adding high-value jobs to its economy, Zagorsky said.

Russia, meanwhile has been using the partnership to stay afloat as it deals with sanctions and tries to keep funding its war in Ukraine. The difficulties it is facing make it only more likely that Russia will deepen its dependence on China, Zagorsky said.

For instance, China's purchasing power GDP, which weights GDP to the cost of living, is currently around $24.8 trillion, or six times of that of Russia's. Zagorsky estimates that China's purchasing power GDP could increase to around eight times that of Russia's in the coming years.

"There comes a point when China just becomes so much more economically dominant that the choice of becoming a vassal state really is in many ways predetermined," he added.

Though political relationships can change rapidly, neither Zagorsky nor Connolly see a reason for Russia to end its relationship with China. Both countries have reasons to distance themselves economically from the west, and so far, their alliance has paid off.

"There's no reason to think that it won't last a long time," Connolly said. "At the moment, they both provide things the other needs."

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