An Offer You Can’t Refuse
Russia’s request to China for military supplies opens a Pandora’s box. It’s not clear when this request was made. If some time ago, it tells us that Putin always had a Plan B, and that the Americans have been slow to take pre-emptive action. It is more likely, however, that the request comes to us hot off the press, confirming stories of Russian battlefield discomfiture, with generals dying on the front line; and intelligence deficiencies, with top FSB officers under house arrest. Over the weekend, the US talked up the urgency, but this could be diplomatic dramatics, as Jake Sullivan, the US National Security Advisor had Monday’s date in Rome with Yang Jie Chi, China’s top diplomat, in his diary for some time. Now it looks as though Sullivan’s place in history rests on making an offer which Yang can’t refuse.
China has to choose between imperfect options. It is in the business of challenging America, but Russia presents an unappetising prospect. A sense of Putin’s self-destructive course comes from the attitude of Russia’s neighbours. Poland has taken in half of the 2.5m refugees fleeing Ukraine, adding three percent to its population in two weeks, without, as its prime minister, Andrzej Duda, proudly stated yesterday, putting a single refugee in a camp. Duda went on to express his aversion to Russian influence in the most strident terms. Putin faces the same from all in Russia’s ’hood, who remember their pre-1989 subjugation; his genius has been to add Ukraine to the roster of his irreconcilable neighbours.
If Sullivan needed to take a dark tone when he met Yang, he had plenty of options. For example, China holds around $1tn of US government bonds. This is around one third of its holdings of foreign reserves. These reserves are parked outside China, in counterparty Central Banks or specialist “custodian banks” in New York City. If Biden wishes to sanction China summarily, it only takes an Executive Order to freeze its holdings. The US Treasury would continue to pay interest to the blocked accounts, keeping America’s credit rating, but China would lose the benefit of its reserves. This would have similar effects to the sanctions on Russia two weeks ago. Not what Yang wants to go home with.
On the other hand, for all that Putin may have forgotten that more flies are caught with honey than vinegar, Sullivan need not make the same mistake. He has battlefield intelligence to share, updates which Putin will have glossed over - indeed may not know - and which China cannot get independently. Then he has the open heart of the United States to offer, not to say its open purse.