Anthony Rowley

Macroscope | As financial crises spread from the West, China must shore up its belt and road strategy

As the West heads for a period of financial fragility, China needs a stable Ukraine to bring its grand infrastructure project back to life – and change the balance of economic power

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Chinese President Xi Jinping and Russian President Vladimir Putin head for talks in the Kremlin, Moscow, on June 5, 2019. Xi is reportedly preparing for a summit with Putin in Russia to push for Ukraine peace talks. Photo: AP

Anthony Rowley

Published: 3:30am, 19 Mar 2023

Chinese President Xi Jinping’s three-day state visit to Moscow, due to begin on Monday, and the failure of Silicon Valley Bank (SVB) and others are unconnected events. Yet, taken together, they hint at a coming shift in the balance of East-West economic power that could prove unexpectedly profound.

SVB’s collapse and the distress engulfing Credit Suisse have revealed once again (as did the 2008 global financial crisis) the vulnerability of market economies to financial system crises. The health of a country’s financial system is critical to its economic power and global reach.

We now have a situation where China is emerging from lockdown into economic recovery and increasing its global diplomatic clout, while Western economies face a possible systemic financial crisis as they shoulder the growing burden of military spending and post-war reconstruction.

Financial system problems will continue to escalate, contrary to the naive belief among many market commentators that all will be well with inflation easing. As I, for one, have pointed out, central banks’ interest rate increases have all but guaranteed financial system distress.

As a recent Reuters report said: “There’s no doubting it now – Credit Suisse has made the banking crisis global.” Or, as one analyst at foreign exchange specialist Oanda noted: “Fear has once again gripped markets [that are] concerned about a repeat of past crises.”

Contagion spreads rapidly at these times and what makes the situation so volatile is that central banks’ actions to prop up financial institutions through deposit guarantees or equity injections are at odds with their policies to tame inflation.