Russia & Europe
Economy
Russia’s oil and gas revenues have fallen to their lowest level in years, largely because of Western sanctions, according to a study by the Kyiv School of Economics. Finance Minister Anton Siluanov acknowledged the shortfall in a candid public videoconference with President Vladimir Putin this week. State-owned giant Gazprom announced profits fell by 41% in 2022.
G7-led price caps on Russian crude and petroleum products, imposed early this year, cut first-quarter revenues nearly in half compared to the same period in 2022. Nevertheless, during that time Moscow exported at the highest volumes since the war began, with almost 80% of crude shipments heading to China and India.
Some analysts assess that by flexing its energy leverage, Moscow sabotaged its economic future. Western economies are re-prioritizing domestic energy supply chains and emphasizing renewables. Together, war and subsidies may have accelerated the global green transition by a decade, according to the Economist. The International Energy Agency similarly concluded that Russia’s war jumpstarted the clean energy transition and assessed that fossil fuels will peak in just five years.
Technology / Cyber
Russian officials acknowledged late last year that the introduction of broad-scale commercial 5G networks based on domestic equipment would likely be impossible until at least 2030, according to new reporting this week. Many countries are on track to have 6G networks operation by that time.
Together with domestic telecommunications operators and equipment manufacturers, the government has formed a preliminary strategy for the development of mobile networks until 2035. The document states that mobile operators, which account for about 38% of investments in the Russian communications industry, reduced investments by 17.6% in 2022 due to external restrictions on the purchase of telecom equipment. In total, investments in the industry fell by 5.8%, while the communications industry’s contribution to Russia’s GDP has fallen by half over the last decade.
The strategy also notes that networks should initially be designed “for the needs of public administration, defense, security and law and order,” suggesting that civilian consumers will be the last recipients of 5G connectivity.
Politics
The Financial Action Task Force (FATF), the inter-governmental organization that sets standards for combating money laundering, is reportedly poised to blacklist Moscow at its forthcoming June meeting. The designation would further complicate business and financial transactions between Russia and third countries. Meanwhile, the Kremlin is said to be pressuring countries, particularly India, to scuttle the move.
Moscow, which was suspended from FATF membership last February, has threatened New Delhi that nuclear energy, rail, aviation, oil, and military cooperation might be at risk unless India acts to oppose FATF pressure.
India, meanwhile, has taken pains to appear neutral and avoid antagonizing Moscow over the Ukraine war, abstaining on all UN resolutions on the Russian invasion over the past year.
Military
Russian and Belarusian defense ministers this week finalized paperwork on the deployment of Russian tactical nuclear missiles on Belarusian soil. The two allies claim the move was driven by “unprecedented” Western pressure.
Moscow, which will maintain operational control over the weapons, claims the move is in full compliance with international legal obligations. It is unclear how many will be stationed on Belarusian territory, but the U.S. government believes Russia possesses roughly 2,000, including air-launched, short-range ground-launched missiles and artillery rounds.
Tactical nuclear weapons are intended to destroy enemy troops and weapons on the battlefield. Such arms were held in Belarus throughout the Cold War, including at dozens of Soviet-era storage facilities which might now be re-used.
Society
Russia has lost over 50,000 scientific researchers over the last five years, Russian Academy of Sciences Vice President Valentin Parmon claimed this week, arguing the need to triple state R&D expenditures to attract enough talent to reach “at least an approximate average level” of technologically advanced countries.
Meanwhile, Moscow State University rector Viktor Sadovnichy claimed that the number of scientists in Russia below the age of 30 has decreased by a quarter over the past decade. Per Moscow’s Higher School of Economics, across all age groups, scientists numbered a mere 340,000 in 2021 – roughly a third of their total at the time of the Soviet collapse three decades prior, when Russia led the world in scientific workers.
China
Economy
U.S. and PRC secretaries for commerce met this week to discuss trade relations between the two countries. Both sides issued positive accounts of the dinner.
Following last week’s positive overtures about the need to get the relationship back on track and the arrival this week of China’s new diplomat to the U.S., the two countries may again try to reduce tariffs. Both countries were apparently close to reaching a deal before Speaker Pelosi’s visit to Taiwan in 2022.
With both countries’ economies still flagging, there is likely an appetite in DC and Beijing to reduce trade barriers on non-critical technologies.
Germany and its companies continue to oppose trade barriers between itself and China.
Economic indicators show two consecutive quarters of declining GDP in Germany and Q1 trade between Germany and the PRC fell 11.3% according to Financial Times.
Executives at German firms Volkswagen and Siemens have issued statements in the last few months indicating they plan to continue investing in China.
Technology / Cyber
Political actors in DC are pushing the Biden administration to respond to the Cyberspace Administration of China’s ban on Micron chips in critical information infrastructure.
China sees the Micron ban as a response to US export controls that impacted NAND memory chips produced by Chinese company YMTC (with training and tech transfer from Apple).
The Biden Administration will likely sidestep the Micron ban response and choose to focus on convincing South Korea to not allow its firms to replace Micron’s marketshare.
Some chip executives have been outspoken against the tack the Biden Administration is taking. Nvidia’s CEO made many comments in the last few weeks about the importance of the PRC market and how the trade barriers only incentivize China’s pursuit of building the tech itself.
Administration officials believe that China will pursue the technology regardless of market conditions and that using the US’s current lead to slow China’s progress before it might be lost is the most effective course of action.
Warren Buffett sold his remaining shares in TSMC, telling investors he no longer liked its location.
Politics
China’s state-backed hacking teams were caught conducting a three-year campaign against Kenyan government systems.
It’s hardly news that China’s government teams hacked into parts of Kenya’s government—such collection is normal between countries. So why is this interesting?
The collection targets appear to include information about Kenya’s plans and ability to repay debt owed to the PRC that it accumulated through China’s Belt and Road Initiative.
Reports emerged last week that many countries indebted to China were struggling to make payments on its loans, including Pakistan, Bangladesh, etc. China lent to many countries that already have trouble repaying World Bank and IMF loans. Now, the security services appear to be conducting credit checks on its borrowers.
Despite China’s best efforts to improve infrastructure in developing countries while also creating a market for Chinese companies overseas, the crunching debt payments may sour these countries’ opinions on China. Hacking into systems to double-check the payment schedule won’t make China any more beloved.
Military
A university in China overseen by the State Administration for Science, Technology, and Industry for National Defense released a paper this month detailing a war game in which the PLA was able to sink a US Carrier fleet with hypersonic missiles.
Reading into war games is rarely useful, and that’s not our intent here. It’s very unlikely that the researchers are privy to highly-classified intelligence on the actual defensive technologies on board carrier fleets. Besides, the Soviet Union always won all the war games it ran against the US, and we now know those were just self-delusion.
More important is the update to PRC operational concepts, which previously did not rely on hypersonic missiles to beat carrier groups. The test indicates a new path in PRC military operations and that the number hypersonic vehicles that could be used are at least numerous enough to conduct a war game like this one.
Society
KSG fielded a question about Hong Kong this week from a client. We conveyed that, for security and planning purposes, Hong Kong should no longer be viewed as separate from China’s political or security systems. A disappearance this week underlines our assessment.
An ethnic Uyghur student travelled from South Korea to Hong Kong to visit a friend in the territory 2 weeks ago. Upon arrival at the airport, the student messaged family that he was being detained and interrogated at the airport.
No one has heard from the student since his arrival in Hong Kong.
The UN Human Rights Commission has called China’s actions against Uyghurs “genocide.” Observed actions include disappearances, “re-education camps,” forced labor, sexual violence and forced sterilization, and exhuming graveyards to incinerate the long-since buried to prevent family from morning dead ancestors.