Chinese President Xi Jinping has just arrived in Moscow on a three-day state visit to Russian President Vladimir Putin that provides the Kremlin with a fig leaf of legitimacy for its military campaign in Ukraine and also promotes China to the top table of international diplomacy.

Putin will be grateful for Xi's visit, as China is a world power and his mere presence adds some legitimacy to Russia’s war; by simply showing up, Xi tacitly condones Russia’s “special military operation”, and Beijing pointedly failed to join in the international condemnation of the invasion a year ago.

“President Xi’s visit to Moscow is not expected to result in any major new announcements or any dramatic change of course by Russia. The visit offers the opportunity for Beijing to show that it should no longer be regarded as a regional Asian power but that it wants to have a role in global politics, just as the US and Europe have,” Chris Weafer, the founder and CEO of Macro Advisory and former head of research at multiple Moscow-based investment banks, told bne IntelliNews.

Xi's imminent arrival was part of the motivation for Putin’s surprise visit to the occupied city of Mariupol at the weekend: Putin marched around the debris to show it was now Russian; then only a day later he meets Xi in Moscow, which lends tacit acknowledgement that China sees it as Russian too. The Russian state media played on both back-to-back events heavily to drum home the point.

“For Russia, the visit shows it has the economic and political backing of China – not military – and this helps Russia stay defiant against Western sanctions. So long as Russia can trade with China, and other Asian states, there is no danger of running out of money or being forced to concede on the battlefield,” Weafer added.

Xi also gets a lot out of the trip. Russia has become a major trade partner for China, with trade turnover up by a third in the last year to $190bn and on course to top $200bn this year.

However, the main gain for Beijing is that China has gone from pursuing its foreign policy goals through economic means – the promotion of the Belt and Road projects – to now engaging in pure diplomacy and at a very high level. Last week Beijing brokered a rapprochement between Iran and the Kingdom of Saudi Arabia (KSA), which had been estranged for seven years, and floated a 12-point Ukraine peace plan on the anniversary of the start of the war on February 24.

As the Chinese plan would leave Russia holding all the territory it currently holds, its chances of success are very low, but as the expectations of success were so low to start with, China will still earn significant political capital with the Global South in particular as an alternative pole to the US on the geopolitical stage. The mere appearance of attempting to intercede between Washington and Moscow itself is a valuable boon to Beijing.

“Two weeks ago, Xi Jinping was elected for a precedent-breaking third term as president. It is clear from statements that he intends to use this term to position China as a global power and for Beijing to have a greater role in major world events,” says Weafer.

Washington has rejected the Chinese attempt to broker a peace out of hand and Kyiv is almost certain to reject it as well. Xi is due to talk to Ukrainian President Volodymyr Zelenskiy after his Moscow trip.

As reported by bne IntelliNews the US plan seems to assume that there will have to be a negotiated end to the war, as an outright Ukrainian victory remains a very dim prospect, but when that happens, the US wants Kyiv to have “the strongest hand possible” for those talks.

With a major Ukrainian spring offensive mooted, it is clearly too soon for those talks, as the West is hoping Kyiv can repeat its success with the Kharkiv initiative last September when Russian defences collapsed and hundreds of square kilometres were retaken. However, with its new-found diplomatic assertiveness, if those peace talks do begin then Xi will clearly be demanding a place at the table as one of the few countries with any real leverage over Moscow.

“China cannot hope to be a peacemaker on its own but there are indications Beijing may try to get broader G20 support for new proposals and with a view to pushing for consensus at the summit in New Delhi in September,” says Weafer.

Trade and sanctions

Xi's visit is significant, as he is also only concerned with reducing tensions between Nato and Russia, as there is a danger of China getting dragged into the sanctions regime. China currently does more than $1 trillion a year of trade turnover with the EU and US and, as such, is significantly exposed to the threat of sanctions. And China is now doing significant trade with Russia too; it has also been accused of being the source of many of Russia’s sanctions-busting imports of fuel and technology.

Trade between Russia and China surged by nearly a third in 2022, hitting a record $190bn, according to Chinese customs data. The bulk of Russia's exports to China come from the energy sector, making Russia the second-largest supplier of oil to China.

At the end of January 2023, Russia also became China’s number one natural gas supplier, overtaking Turkmenistan and Qatar, Interfax reports with reference to Chinese customs data. Russia supplied over 2.7bn cubic metres to China of gas, of which 2bn were delivered through the Power of Siberia gas pipeline, and LNG accounted for about 0.77bn. For comparison, Qatar and Turkmenistan supplied China with a total of 2.2bn bcm, and Australia sent 1.9bn. In 2022, Russia delivered a record 15.5 bcm to China via the Power of Siberia gas pipeline; gas exports increased by 49% compared to 2021.

China has been a big winner from the embargo on Russian crude exports, having absorbed, along with India, all of the supplies that were formerly shipped to the EU. Moreover, Beijing has refused to join the West’s extreme sanctions regime on Russia.

“Another significance of President Xi’s visit to Moscow is the backdrop of US and EU officials discussing the effectiveness of the oil price cap and whether to lower it from the current $60 per barrel,” says Weafer. “China, along with India and others, has been an eager buyer of discounted oil (and coal, etc.) for the past year and this visit enforces the fact that this will continue. China will always look for a price discount and an energy bargain, but it clearly has no intention of complying with the EU/G7 price cap (nor has India) and that makes it more of a political gesture than something which can force a behaviour change by the Kremlin. The mid-December to mid-January revenue dip is already quickly reversing.”

Despite sweeping sanctions on Moscow after the Ukraine invasion, China has become Russia's top trading partner, accounting for more than 40% of commodity imports. In addition to consumer goods, China is also a significant source of Russia's technological imports.

As Western brands have left the Russian market, Chinese firms have actively become involved in parallel import programmes, with Chinese brands dominating the Russian auto and telephone handset markets.

However, China still adheres to Western sanctions when it comes to dealing with major companies, and its banks have been very reluctant to work with the Russian banking system, as they also have significant exposure thanks to branches in the US and Europe.

Nonetheless, some second and third-tier firms are taking a keen interest in the Russian microelectronics market, despite restrictions on exports from the West, The Bell reports. Russia still receives large numbers of semiconductors and microchips from China, which are banned from export to Russia from the West, according to a report by the Free Russia Foundation.

Xi is attempting to navigate a delicate path between these clashing rocks that will also lift Beijing’s international profile as Russia’s interests align with China’s in several places.

One of the most obvious gains from the unprecedented Western sanctions on Russia is the serious internationalisation of China’s currency, which Beijing would like to see become an international reserve currency. Back in 2014, the Russian authorities responded to sanctions by setting a course away from a dependence on Western currencies in the finance sector, particularly the US dollar. That process only accelerated after the February 24 invasion. The Central Bank of Russia (CBR) has already removed the dollar from its reserve currency basket and added the Chinese yuan. This year the CBR intends to dump the euro too and hold exclusively gold (40%) and yuan (60%). It has also switched to using yuan for market interventions as part of the new budget rule regime introduced earlier this year. As a result, Russian firms now settle almost half of their international trades in rubles or yuan, the CBR calculated.

In 2021, the yuan was used to pay for just 0.5% of Russia’s exports. By the start of 2023, that figure had risen to 16%, reports The Bell. That enabled the Russian authorities to reduce the use of dollars or euros from 87% to 48%, with 34% of payments made in rubles. In payments for imports, the yuan’s share rose from 4% to 23%. At the same time, payments in dollars and euros fell from 65% to 46%, according to The Bell.

No one is expecting any quick fixes from Xi’s visit to Moscow, but the game has become more complicated, as Beijing is clearly flexing its diplomatic muscles at the top level now. As the recently minted largest economy in the world in PPP (purchase power parity) terms and a growing military presence in Southeast Asia, it wants to be taken seriously.