17 February, 2010

Russia and China

STRATFOR has an interesting comparison of the immediate prospects for Russia and for China.  For Russia, the fact that the (nearly bankrupt) Greek government is going to them for help--after being rejected by the EU--is a blow to the eurozone and a boost for Russia's prestige.
This was an avenue that both Iceland and Serbia took during their economic crises, and each time the EU responded with financial aid of its own to counter Moscow’s rising influence. A Russian loan to Greece — no matter what the actual size of the aid package — would be a psychological blow to EU unity. An EU member state — a eurozone state no less — finding financial assistance in Russia rather than among its fellow euro users would lay bare the EU’s inefficiency, particularly in times of crisis management. Moscow would therefore send a powerful message to Central European states that see the EU as a counter to Russian spheres of influence on their borders.
China has the problem that it's stuck between saying no to helping Iran resist American sanctions--which would undermine its claim to counterbalance American power in the region--or try to block the sanctions--which it doesn't have the immediate infrastructure to do, and would encourage more Sino-US tensions.
While sanctions may not specifically target Iranian oil exports, Beijing reasonably fears they could create a chain reaction jeopardizing its oil supplies not only from Iran, but also from the rest of the Gulf, since these shipments pass through the Strait of Hormuz where Iran is most likely to aim any retaliation. While China’s economic growth rate is high, serious vulnerabilities exist in the banking, property and export sectors, all of which the government is attempting to address without triggering a destabilizing slowdown. Now would be an exceedingly bad time for a sudden energy shock.

Moreover, much of the credibility of China’s claims to rising international status rest on its ability to defend smaller states like Iran that are antagonistic to the United States. If China drops Iran at the first sign of American coercion, a host of other states — in Latin America, Africa and Southeast Asia — will rethink whether they can rely on China for support. In such a case, Chinese leaders would struggle to allay domestic outrage at yet another example of acquiescence to the United States, while much of the political capital they have painstakingly built up in recent years through speeches, state visits and investments across the world would be squandered.
From the Chinese perspective, it's one more reason to develop a much greater naval presence, or to work out some kind of arrangement that makes China's access to oil less dependent on the good will of the US Navy.

I wonder how the debt issue fit into this?  By some measures, the British economy is in even worse shape than the economy of Greece, and American problems are growing rapidly.  Can the Chinese find a way to use the debt as a lever?

"This report is republished with permission of STRATFOR"