Why the PRC is mending fences with neighbors and US allies; BRICS Kazan Declaration hints at the CCP’s hegemonic ambitions

  1   Why the PRC is mending fences with neighbors and US allies

On Oct. 23, Xi Jinping met with Indian prime minister Narendra Modi on the sidelines of the BRICS Summit in Russia. During the meeting, both sides made remarks that seemed to indicate an improvement of ties since the bilateral relationship became strained in the wake of intermittent border skirmishes from 2020.

Noteworthy points from the meeting per the PRC foreign ministry’s readout include:

• Both sides said they should “strengthen communication and cooperation, enhance strategic mutual trust, and facilitate each other’s pursuit of development aspirations.”
• Both sides said they would contribute to promoting a “multipolar world and greater democracy in international relations.”
• Both sides understand that “China and India are each other’s development opportunity rather than threat, and cooperation partner rather than competitor.”
• Xi and Modi commended the “important progress the two sides had recently made through intensive communication on resolving the relevant issues in the border areas.” Modie made “suggestions on improving and developing the relationship” which Xi “agreed to in principle.” Both sides also agreed to make good use of the special representatives mechanism on the China-India boundary question, “ensure peace and tranquility in the border areas, and find a fair and reasonable settlement.”
• Both sides agreed to have talks between foreign ministers and officials at various levels to “bring the relationship back to sound and steady development at an early date.”

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India aside, the PRC has in recent months been stepping up diplomatic efforts to better relations with several countries:

Japan
Sept. 20: The PRC agreed to “gradually resume” imports of Japanese seafood following a ban that was imposed in response to Japan discharging treated contaminated water from the Fukushima nuclear plant into the Pacific Ocean in late August 2023.

Oct. 21: Wang Yi, the PRC foreign minister and Office of the Foreign Affairs Commission director, held a phone call with Takeo Akiba, secretary general of Japan’s National Security Secretariat and Japan’s lead person for China-Japan high-level political dialogue. Wang said that the PRC hopes that Japan would work with it to maintain a “mutually cooperative and non-threatening” positioning, and expressed hope that the new Japanese cabinet would bring new momentum and foster fresh development in the bilateral relationship.

Oct. 23: The PRC and Japan held the 17th round of high-level consultations on maritime affairs in Tokyo. According to a Xinhua readout, both sides agreed to “earnestly implement the important consensus reached by the leaders of the two countries, continue to maintain close communication on maritime affairs, properly manage and control differences, strengthen mutually beneficial cooperation, and make positive efforts to build the East China Sea into a sea of peace, cooperation and friendship.”

Australia
June 15 to June 18: PRC premier Li Qiang visited Australia. During his trip, Li said on several occasions that China-Australia relations have “returned to a normal track” or are “back on track.”

Oct. 21: Bloomberg News reported that Australia’s wine exports climbed by 34 percent to A$2.4 billion (about $1.6 billion) due to an increase in shipments to China and Hong Kong following Beijing’s lifting of tariffs on Australian wine in late March.

United Kingdom
Oct. 18: Wang Yi met with UK Foreign Secretary David Lammy in Beijing. During their meeting, Wang said, “China-Britain relations … now stand at a new starting point. Competition among major powers should not be the backdrop of this era.” Wang also described the Labor government’s new model for developing relationships as “positive” because it “conforms to … the current needs of the bilateral relationship.”

  Our take

1. There are several reasons why the PRC is extending diplomatic overtures and working to ease tensions with India and other countries.

First, Beijing is likely looking to improve a geopolitical environment that has become increasingly hostile towards the PRC and is negatively impacting the regime. The international community is growing more aware of the CCP threat and countries are becoming more willing to counter or defy Communist China to safeguard national security and dissuade potential PRC aggression. The Xi leadership also did itself no favors with its earlier “wolf warrior” approach to foreign relations, which seriously eroded the goodwill between the PRC and many nations. A hostile international environment poses a drag on the struggling Chinese economy and affects the CCP’s long-term ambition of becoming the global hegemon.

Second, Beijing is adapting to the realities of “great power competition.” The Xi leadership has likely concluded after studying the Biden administration over the past four years and gauging global sentiments that the U.S. (regardless of who is in charge in Washington) and its allies are set on “containing” the PRC over the long term, with the goal of seeking an outcome that would lead to the demise of the CCP (either through effecting leadership change or compelling China to become completely subservient to the rules-based international order). Therefore, the Xi leadership is looking to rehabilitate relations with its neighbors, as well as allies and nations friendly with the U.S., to minimize the effect of “containment” and possibly exploit fractures to turn the tables should opportunities arise. Specific to India, Beijing could be looking to minimize the risks of being “lured” into an unwanted conflict on the border when it is already managing tensions (i.e. playing “gray zone” tactics to exert PRC presence, but stopping short of aggression) in the Taiwan Strait and the South China Sea. Note that risk minimization is not eliminating risks; the People’s Liberation Army could still attempt border mischief that it believes it can get away with.

Third, Beijing is likely freeing up bandwidth to focus on resolving domestic crises. Fixing the economy is currently the most pressing issue, with the CCP’s own figures indicating that it is in a very bad state. The Xi leadership’s foreign charm offensive is almost certainly geared in part towards attracting investments that would help to prop up the ailing economy.

2. We believe that Beijing’s ongoing effort to repair diplomatic relations with China’s neighbors and U.S. allies are likely to have a minimal effect in resolving the PRC’s various problems. For one, countries that have gained greater awareness about the CCP threat are not going to drop their guard just because Beijing is suddenly “playing nice.” Countries are also unlikely to start things “fresh” with the PRC regardless of the propaganda as long as the CCP remains in charge and Xi Jinping persists with authoritarian dictatorship.

Deteriorating global economic conditions and growing wariness towards the CCP also mean that the PRC will see minimal economic benefits despite improving diplomatic relations with other countries. China and some countries could see an uptick in trade as the PRC lifts sanctions and attempts to “open up” wider. But foreign investment is unlikely to surge back to China as the U.S. and its allies restrict investments on national security grounds and countries in general become more reluctant to invest in China due to worsening local economies and China’s dimming prospects.

  2   BRICS Kazan Declaration hints at the CCP’s hegemonic ambitions

The leaders of the BRICS countries attended a summit in Russia from Oct. 22 to Oct. 24. On Oct. 23, the summit issued a “Kazan Declaration” under the title, “Strengthening Multilateralism for Just Global Development and Security.”

Some noteworthy points in the Kazan Declaration include:

• Broadly, the Declaration calls for strengthening “multilateralism” and expanding cooperation between BRICS countries and the Global South.
• The Declaration notes the “ emergence of new centers of power, policy decision-making and economic growth, which can pave the way for a more equitable, just, democratic and balanced multipolar world order.”
• The Declaration supports the “multilateral trading system with the World Trade Organization at its core” and rejects the “unilateral trade restrictive measures that are inconsistent with WTO rules.”
• The Declaration expressed deep concern about the “disruptive effect of unlawful unilateral coercive measures, including illegal sanctions, on the world economy, international trade, and the achievement of the sustainable development goals.”
• The Declaration called for reform to the Bretton Woods institutions to increase the representation of emerging markets and developing countries in leadership positions.
• The Declaration called for building a “brighter shared future for the international community based on mutually beneficial cooperation.”
• The Declaration called for the elimination of “unilateral coercive measures” such as unilateral economic sanctions and secondary sanctions.
• The Declaration denounced Israel’s military actions in the Middle East.
• The Declaration said “high debt levels in some countries reduce the fiscal space needed to address ongoing development challenges aggravated by spillover effects from external shocks, particularly from fluctuations in financial and monetary policies in some advanced economies as well as the inherent problems with the international financial architecture.” Also, “high interest rates and tighter financing conditions worsen debt vulnerabilities in many countries.”
• The Declaration welcomed the use of local currencies in financial transactions between BRICS countries and their trading partners.
• The Declaration said that the BRICS countries task their finance ministers and central bank governors to “continue consideration of the issue of local currencies, payment instruments and platforms and report back to us by the next Presidency.”
• The Declaration welcomed the “initiative of the Russian side to establish a grain (commodities) trading platform within BRICS (the BRICS Grain Exchange) and to subsequently develop it including expanding it to other agricultural sectors.”
• The Declaration endorsed the decision of the working group of the Partnership for the New Industrial Revolution to establish seven working groups, including on chemical industry, mining and metals, digital transformation of industry, SMEs, intelligent manufacturing and robotics, photovoltaic industry, and medical devices and pharma.
• The Declaration encouraged BRICS members to “explore the possibility for joint activities in the field of digital infrastructure.”
• The Declaration opposed “unilateral measures introduced under the pretext of climate and environmental concerns.” Also, BRICS members “oppose unilateral protectionist measures, which deliberately disrupt the global supply and production chains and distort competition.”

  Our take

1. The Kazan Declaration hints not-so-subtly at the PRC and Russia’s ambition to establish a world order counter to that of the U.S.-led rules-based international order. Notably, the Declaration calls for a “more equitable, just, democratic and balanced multipolar world order” (we previously analyzed what the CCP means by “multilateralism” here and here) and criticizes so-called “unlawful unilateral coercive measures.” The Declaration also echoes CCP rhetoric in urging the construction of a “brighter shared future for the international community based on mutually beneficial cooperation.” Finally, the Declaration encourages reduced dependence on the dollar and circumvention of the Western financial system by promoting the use of local currencies in financial transactions between BRICS members and their trading partners, as well as the development of new payment instruments and platforms.

On paper at least, BRICS presents a somewhat attractive world order to countries in the Global South and other developing nations who are looking for alternatives to the U.S.-led global system. The expansion of BRICS to nine members in 2024 means that the organization of countries makes up nearly half of the world’s population and generates over 35 percent of the global economic output when adjusted for purchasing power. The inclusion of Saudi Arabia, the United Arab Emirates, and Iran also means that BRICS controls 80 percent of global oil production, 38 percent of global natural gas production, and 67 percent of global coal production.

However, the growth of BRICS also means the expansion of the PRC and Russia’s influence. Russia’s establishment of a grain (commodities) trading platform within BRICS allows it to leverage its status as a major grain exporter to strengthen its control over global food supply and attract countries in the Global South and developing regions to join the authoritarian coalition. Meanwhile, points pertaining to industrial, scientific and technological, and digital matters in the Kazan Declaration are aligned with the PRC’s strengths and facilitate the latter in tapping the bloc’s natural resources to develop its dominant industries, increase the exporting of overcapacity to BRICS nations, and expand its influence in those regions.

2. BRICS faces several problems that make it challenging for the PRC and Russia to create their so-called “multipolar world order.”

Some brief points:

• While China and Russia are its most influential members, the BRICS nations have different political systems and economic orientations.
• BRICS members are competitors amongst themselves because their main markets are in Europe and the United States. Economically weaker BRICS countries may fear the PRC’s dominance in the bloc (China alone accounts for 69 percent of BRICS’ GDP) and take action to counter the impact of China’s exporting of overcapacity on their economies and industries.
  China and Russia are historical rivals and would naturally be wary of each other despite their current “no limits” friendship. Additionally, China and India have ongoing disputes on the border and in other areas, and are in economic competition with each other. India is also a member of the Quad alliance with the U.S., Japan, and Australia.
• The BRICS encouragement of local currency transactions and efforts to move away from the dollar are insufficient in the short term to break the dollar dominance. Meanwhile, the significant fluctuation of currency exchange rates among the BRICS members brings a risk of devaluation with local currency payments.
• Countries experiencing dollar shortages could use currency swap mechanisms with China to sell renminbi and acquire dollars to obtain foreign exchange, placing depreciation pressure on the yuan.
• BRICS aims to create its own payment system, but there is natural competition among the bigger members of the bloc (China, Russia, India) to control financial transaction data without exposing their own. This makes it difficult for BRICS members to align themselves on common interests with regards to the payment system.