Read Part 1 here:
Right now Russia's entire military industry is bigger than China's military spending. Russia's massive investment in arms makes me shudder. Now Russia is a top manufacturer of tanks, missiles, artillery ammunition, small arms, armored vehicles of all types, upgrade kits for 'dumb' arms, laser systems, electronic warfare, ships, and who knows what else. Furthermore Russia is scaling upward while its economy appears to be showing signs of growth. How is this possible?
Russia is a cash and commodities economy. It is high tech so it can import substitute when necessary. Its espionage is world class and integrated with its organized crime, so it can import key components. It is the most anti-fragile country in the world as the commodities bullwhip effect over 15 months has shown. Global cash (dollars) equals access to the Western component chain. Very valuable. Dollars lets someone live in Miami (think of all those Russians who go to Florida to give birth)(https://apnews.com/article/161a0db2666044dc8d42932edd9b9ce6), which as we've established is more desirable than Yalta (maybe not during spring break)(https://dnyuz.com/2023/04/08/fed-up-with-mayhem-miami-beach-wants-to-tame-spring-break-for-good/?ref=upstract.com). Russia has been a capital exporter for 32 years now (https://tradingeconomics.com/russia/balance-of-trade). As discussed previously, being rich abroad is no protection from the Russian state.
This gives the Russian government the ability to use Russian money for state policy. That's the reason the west froze Russian oligarch wealth. And yet, Russia had the same amount of investments abroad as it had foreign direct investment at home. While $300 billion can be seized from Russia (https://www.tribuneindia.com/news/world/sanctions-have-frozen-around-300-billion-of-russian-reserves-finance-minister-says-377494), Russia can seize $300 billion in foreign owned assets (https://tradingeconomics.com/russia/foreign-direct-investment). Russia is all about the Ruble. What's a Ruble worth? It's worth arms. Currency reserves(https://tradingeconomics.com/russia/foreign-exchange-reserves). It's worth industrial commodities. It's worth energy commodities. It's worth a Moscow lifestyle. It's worth gold (https://tradingeconomics.com/russia/gold-reserves). Russia sells oil for gold, not because it's a gold standard economy, but so it can get a dominant position in the gold market same as it has the energy and agricultural market. If gold has to move through the Russian market, that increases Russian metals leverage (https://www.cnn.com/2023/03/09/business/russia-metal-exports-prices/index.html). If Moscow can become an alternative to London for commodities, then the Ruble will be worth international traded commodities. For example, Russia, India, and China could control the precious stone market, since Moscow, Jaipur, and Shenzhen are all major centers of the gem trade. But of the three, only Moscow has enough diversified financial industries AND solvent financial institutions to pull it off. Russian decoupling with Western financial markets accelerated after 2014. They've had a long time to make the Ruble a pragmatic, useful currency, that resists Dollar zone bullying.
What's a Yuan worth? You think you own a condominium, but it's not even finished. And then you have to pay the mortgage anyhow. It's worth getting locked inside your own apartment and not being able to stockpile food, because that would cause starvation for someone. So it's food insecurity. Being locked inside without enough food in a place you don't own the way a Westerner thinks of 'ownership' sounds horrible to me. A yuan is any electronics I want. Some machines. Lower end consumer goods. Social credit. It's backed by trash. You can't convert out of it, so it can't be your financial 'home.' If the party doesn't like you (like Jack Ma), you lose everything. China's financial bubble looks just like America's 2008 one, but worse.
Russia's trade surplus with China has vanished since its war in Ukraine started (https://tradingeconomics.com/china/exports-to-russia) but Russia still has a net trade surplus with its other trading partners, so its cash position continues to improve. What is China selling Russia? Anything Russia will buy. We can infer it's a lot of machine tools and arms, just based off budget and battlefield results. Russia could run a trade deficit for years and it wouldn't cause any real trouble for Russia because of all the assets it owns overseas. Meanwhile its military industrial plant has basically obsoleted trillions of dollars of military assets. Subsonic missiles are not so great anymore. They get shot down. Hypersonic missiles are so much more valuable. They can blast you in a bunker hundreds of feet underground. China needs to invest in this, but where's it going to get the money? It needs Russian cash. Idle industry is dead industry. The death of the USSR taught us that. Given that China's economy has slowed dramatically, that's evidence that Russian trade has not made up for China's trade advantage with the world during peace. Russia has plenty of cash and gold to keep going. Furthermore, Russia's trade surplus with nearly everyone has given it underappreciated soft power. It's not well known, but Russians dominate Goa in India. They practically own the place, Russian gangsters crushed Indian law enforcement in street battles. Now it's a favored vacation spot for other Russians because Russian gangs run prostitution and drugs there with impunity. In Russian controlled areas in Goa, it's Russian only. Indians aren't allowed. You will be snubbed if you're lucky, beaten if you're unlucky and you defy them. With visa restrictions, Russians in Goa stay there, but Russians abroad can't get in. So Russians are increasingly going to Thailand. Crime and cash gives you the ability to switch it up. I'm sure everybody has a story of an area they know of where the Russians control the crime. Crime and cash weakens law enforcement and is its own form of 'soft power.' If Russia really needs to cough up a few hundred billion and doesn't want it coming off their balance sheet, they have options.
Russia has needed twenty or thirty years to recapitalize its economy. Trade restrictions and corruption made it more effective to move capital abroad. Now with sanctions, cash has to stay inside Russia. Import substitution is the massive untapped market. Russia doesn't need to make 2nm semiconductors to make an accurate missile. I read they're somewhere at something like 28nm by 2030 (https://www.tomshardware.com/news/russia-semiconductor-plan-28nm), which is like a decade behind the Western supply chain. Someone in Hacker News used this as an example of how far behind Russia is, but I saw it as proof that Russia is self-sufficient. If they don't need Western components to build their arms, and their arms are premium, and they're the biggest arms manufacturer in the world, then this proves they climbed their way back to the top of the arms value chain with minimal Western inputs. Everything that could be built a decade ago in the West, can start to get built in Russia. This means import substitution continues. Sectors that grew to be worth trillions of dollars in the West can start in Russia. They only need to be worth a small fraction of the mature market to super-charge the Russian industrial economy and help it diversity into modern components. Then China will again have to be dependent on key components with a trade partner. Just because China has the tech and workforce to make more modern components, doesn't mean they can scale up. After all, they haven't yet. That's because they lack the money. Russia doesn't have that problem. Their foreign debt is insignificant. They have cash galore. China is going to have lost decades, like Japan, because it has too much bad debt.
Bad debt is not just a security, it's a lifestyle. It's a mindset. A fake promise to pay, a fake promise to collect, and pass the buck. When you're out of suckers, it's all over. People build ersatz goods in bad debt economies. Just good enough to look like collateral (https://www.scmp.com/business/companies/article/3092042/explainer-how-kingolds-fake-gold-bars-slipped-through-scrutiny), but not great value when used. Cash doesn't let you exploit a bubble, but it lets you exploit a popped bubble. Your cash gains buying power as perfectly good stuff loses value. The Yuan continues its decade long slide against the Dollar. Unlike Japan, China is already leveraged up and doesn't have the cash to prop up its currency. Its promises are bad. Its use cases are bad. It's going to end bad for China. It will have to send more and more stuff to Russia just to keep the sweet commodities coming in. Saudi Arabia is on a buying spree in China, but they're being hasty. The Yuan has weakened over 7% in the last year against the dollar. The Ruble strengthened more than 1% against the dollar during the same time. But, but, but deficits! The currency markets have spoken. Russia has sanctions and still the Ruble keeps value. China sees its capacity utilization drop and now it freaks out. The discounts are just beginning for Russia. The more China depends on Russia for commodities, the more it's vulnerable to disruption as was Europe with gas. Russia has set itself for the next market as arms exporter. What about China? It has all this USA oriented debt that is getting more expensive by the day. And what did it do with all the money it was getting? Loans to companies capitalized with stolen intellectual property, to re-export to Western markets. Canada lost Nortel to Huawei. But Huawei is dead in the water. Unfair says Pepe Escobar? I say revenge is sweet. Just like Michael Every asserted, a few billion dollars of Russian gas propped up a trillion dollar German industrial economy. Likewise the West with China regarding semiconductors. Trillions of value depends on billions in unavailable components. At the same time nobody wants to lend them more money. Russia has hundreds of billions of dollar cash equivalents, but also trillions of dollar equivalents in commodities. Russia is the unleveraged party (https://tradingeconomics.com/russia/government-debt-to-gdp). It's just getting its bubble started and it chose to build the arms industry and it has the same head start there that the West has in semiconductors... except we're in a time of war. Russian arms are going to be in demand for the next 30 years because nobody else can make as much ammunition for the weapon systems and we've seen what happens when you run out of ammo in modern war. As Russia imports stuff from China to build its industrial base, China is going to pray that Russian demand increases enough to cover Chinese debt service. Seems dicey. Furthermore, China's military industry was trying to catch up to the US. Now it needs to catch up to Russia. So that's money for military industry and production? And what are Chinese financial markets doing again? Seems like a bad scene for China.