Xi Jinping has been a close observer of Russia’s three-year old war in Ukraine. China’s president has been supplying his “dear friend” Vladimir Putin with advanced technologies and helping to prop up the Russian economy, and he is studying Russia’s ability to withstand Western sanctions. Mr. Xi is searching for clues on how the West might try to punish China for crushing Taiwanese independence.
Mr. Putin claims the Russian economy is doing fine, but it isn’t. The combined effects of conscription, defense-production increases and a mass exodus of working-age men have led to labor shortages that are driving up wages and weakening the defense industrial sector. Officially inflation is 10%, though most economists think it’s much higher. Rents in major cities are beyond the reach of most middle-class residents. Interest rates on commercial loans are 21% and expected to rise further, sapping the financial viability of Russian companies. Banks are challenged by Kremlin requirements to provide below-market rates and almost unlimited levels of credit to military-related firms. Moscow is cutting social spending to meet its war needs. The ruble is highly unstable.