May 18, 2024: The high cost of the war in Ukraine plus a decade of economic sanctions has hurt the Russian economy. To make matters worse Russia has no major allies in Europe or overseas. That leaves Russia dependent on China, which has the second largest economy in the world. The Chinese expect to be paid for the substantial economic aid they have been providing Russia. None of this aid is military, but a lot of it is dual use. That is, which means Russia needs only add a few key components to turn dual use materials into a weapon. This would include guided missiles, military communications and ground-based radars. Without these large quantities of Chinese dual use items, Russia could not maintain its production of many key weapons.

One problem remains, how does Russia pay for all this? China suggested, and Russia accepted, that long-standing Chinese claims on a quarter of the Russian Far East and most of its prime coastal areas be considered as a form of payment. China never canceled these claims, even in the 1940s and 50s when China was very dependent on Russia. These claims amount to about nine percent of Russian territory. The Russian Far East contains part of Siberia as well as the large Pacific Ocean coastline and the port of Vladivostok. The relatively small coastal areas are the most densely populated of the Russian Far East. The entire Russian Far East is huge, at 6.9 million square kilometers. That is nearly the size of the eight million square kilometer continental United States. While these 48 states have 310 million people, the Russian Far East only has a population of 8.3 million. The Far East region contains 40 percent of Russian territory and less than six percent of Russia’s population. The region contains many naval and ballistic missile bases as well as ports that provide the cheapest way to get goods from the rest of Russia to the Far East. The Trans-Siberian Railroad alone cannot support the population and economy of the Far East region.

China is willing to continue supplying Russia but only if they can agree on some form of repayment. Currently Russia is operating a wartime economy which puts about 20 percent of its national budget into defense. The normal rate is a few percent. That high rate of defense spending has made it possible to decrease the amount spent on public welfare. This increases the poverty rate, which Russia cannot allow to happen because it would cause more anti-war activity among the population. Russians in general see no benefit from invading Ukraine, a war that was supposed to be over in a few months with a complete victory. That didn’t and the invasion suddenly became a lot more expensive. This could be seen in the fluctuations of the Russian poverty rate. Before the invasion it was 12 percent. That jumped to 20 percent as Russia mustered forces for the invasion and then sent them into Ukraine. The initial invading force was largely destroyed. That’s when Russia began moving to a wartime economy since the war began personnel and material losses have been enormous. Russia sees a persistently higher poverty rate as dangerous and likely to cause widespread unrest.

Russia faces a difficult decision. If they let the economy continue to concentrate on building weapons in order to support the war, internal unrest will increase. If Russia takes the Chinese offer of substantial aid, in return for honoring long standing Chinese territorial claims on territory in the Russian far east that two centuries ago belonged to China, it faces internal unrest.

This deal will, however, reduce military tension between Russia and China. Since the 1990s, as the post-Soviet armed forces fell apart, China was building a world class military, with well trained, largely volunteer troops equipped with modern weapons made in China. Eventually someone in the Russian government did that math. At that point Russia realized they had lost their centuries-long military advantage over China, which was mired in revolution and civil war throughout most of the 19th century and into the 20th century. The Chinese communist won the revolution in the late 1940s and found themselves presiding over a now peaceful and united China with a crippled economy that needed substantial reforms to fix. The reforms didn’t come until the 1980s, when the communist rulers decided a market economy could fix things and that worked. By the end of the 20th century the Chinese economy was booming while the Russian economy was going in the other direction. Now Russia is the supplicant and China the neighbor with a prosperous economy and superior military. Those changes make it possible for China to negotiate some fundamental changes between powerful China and desperate Russia.