Will China let Putin's regime collapse, or risk all to save a feckless ally?

China’s Xi Jinping faces an excruciating choice. He can stand back and allow Vladimir Putin to lose the war in Ukraine, leading to the downfall of his key strategic ally.

That would risk the emergence of a Western-leaning government from the ruins of defeat. It would be the end of Xi’s revisionist grand plan to end American hegemony and rewrite the rules of the global order. It might also be the political end of Xi himself.

The alternative is for Xi to rescue his floundering accomplice. That implies a vast and open-ended commitment along the lines of FDR's lend-lease for Britain in 1941. It would guarantee a world historical confrontation with the democracies and the international economic system.

“That would be an absolutely crazy thing to do. They have played such a cautious game up until now,” said Roger Garside, a former British diplomat in Beijing and author of books on Deng Xiaoping and the Xi era.

“The fundamental interest of the Chinese is to stay alive and prosperous, not to commit economic suicide by supplying lethal weapons to the losing side,” he said.

Yet American intelligence has concluded that Xi Jinping may be preparing to do exactly that. The evidence has been sufficiently compelling to alarm Western allies as well.

“To date, we have seen Chinese companies provide non-lethal support to Russia for use in Ukraine. The concern now based on information we have is that they're considering providing lethal support,” said US Secretary of State Antony Blinken at the Munich Security Conference.

Tim Ash, a Chatham House fellow, said there is logic behind Beijing's confusing messages. China is drawing up a “peace plan”, while at the same time dropping hints that it will keep Putin’s war machine going if the West does not come to the table.

“In recent weeks it has finally dawned on Beijing that Russia is losing this war and actually could suffer a catastrophic defeat,” he said.

“The fear now is that the war could lead to regime change. There is a chance of a pro-Western administration emerging in Moscow. This is the nightmare for China.”

What is clear is that Russia is careening headlong into a fiscal and industrial crisis as hydrocarbon exports dry up, and therefore cannot sustain full-scale offensive warfare for many more months.

“The toughest sanctions on our oil products were introduced only at the end of 2022. This year our exports will be half last year's,” said Russian economist Konstantin Selyanin.

The G7 oil price cap has led to an effective discount of $40 a barrel on Urals crude oil sold on Asian markets. The Kremlin had to draw down almost a quarter of its $186bn rainy day fund in January – including gold sales – to cover the collapse in budget revenues. The fund’s liquid component is down to $84bn.

“The figures are alarming and there are no clear proposals on how to get out of this. Some very serious decisions will have to be made at the highest level,” said Mr Selyanin, warning that Russians will start to feel economic pain in earnest after last year’s misleading resilience.

Oil prices may recover and bail out the Russian budget but that is not what the futures market is telling us. Brent contracts through to the end of 2024 are in ‘backwardation’.

Putin may find ways to circumvent the G7 blockade or to narrow the price discount. But the West has a stranglehold on 90pc of the global tanker trade through insurance, financing, or control of vessels. His putative “shadow fleet” is not big enough to change the equation.

The Kremlin cannot easily replace lost oil and gas earnings. It lacks a functioning bond market able to mobilise domestic savings on a sufficient scale. In that respect, Vladimir Putin is in the same predicament as French Bourbon monarchs in the 18th Century.

China has the means to prop up Putin’s regime – within limits. It has $3.2 trillion of foreign exchange reserves, including $867bn of US Treasuries, and more via proxy holdings in Belgium – which raises interesting questions if the US-China economic war rises to the next level.

China can supply routine chips but itself imports over $300bn a year of semiconductors – more than crude imports – and is vulnerable to a technology squeeze. Washington has already prohibited US companies from selling China the kit and technology used to make advanced chips. Asian allies have gone along with the boycott. They had no choice.

But that is an amuse-bouche compared to what could happen if Beijing pokes Europe in the eye on Ukraine. The West also controls maritime supply routes for oil, coal, liquefied natural gas, iron ore, and soybeans. China could find itself in the same sort of position as Japan after Roosevelt imposed the US oil embargo in 1941.

The Chinese and Western economies are so intertwined after 30 years of globalisation that further escalation amounts to mutual economic harm, but that does not mean that the consequences are equivalent. “If the Chinese turn the whole OECD world against them, they do so at their peril. I can’t believe they would be so foolish,” said George Magnus from Oxford University’s China Centre.

Mr Magnus said China could extend credit lines through the three state agencies that fund the Silk Road but this initiative has gone badly wrong, with more and more countries pleading for debt relief. “China has lost its appetite for lending,” he said.

China’s foreign minister Wang Yi says his country will not supply weapons. His charm offensive in Europe over the last week seemed mostly aimed at trying to separate France, Germany, and Italy from Nato hardliners, while also fanning conspiracy claims about the role of US special forces in bombing the Nord Stream pipelines.

Chinese and Russian officials are singing from exactly the same hymn sheet on Nord Stream, which indicates the flavour of the coming Chinese peace plan.

The problem for Xi Jinping is that he is fatally invested in his strategic bromance with Putin. He declared “limitless friendship” days before the invasion, signalling his support for military action. A Russian debacle leaves having to explain a colossal and unnecessary setback for Chinese interests.

“I don’t think he could survive that after the bromance. It would set off a leadership crisis in the Communist Party, and opponents would use it to get rid of him,” said Mr Garside.

“His authority is already gravely diminished. You can see that in the way he was forced to abandon zero-Covid after the Party Congress. He cannot afford to reverse another of his signature policies,” he said.

The joint 5,000-word statement by Xi and Putin a year ago proclaimed “a relationship that cannot be compared with anything in the world”. It committed China to all-out political war with the West as if the objectives of the Chinese Communist Party and Putin’s regime were sacredly aligned. There is no consensus for this within the upper echelons of the CCP.

Xi has used China’s state media to parrot Russian propaganda on the conflict since the war began. He has undermined a core tenet of Party doctrine: that the principle of territorial integrity under Article 2 (4) of the UN Charter must be upheld religiously.

By backing Putin’s neo-colonial land grab he has undermined 75 years of Chinese diplomacy, not that the global South seems to care. Brazil’s Lula blamed Ukraine for provoking the attack. South Africa’s Ramaphosa is soon to hold joint military manoeuvres with Russia and China, as missiles rain down on Ukrainian children.

Powerful figures in the Communist Party think Xi has devalued the Chinese moral brand and damaged Chinese economic interests by aligning with Putin’s deranged regime.

They think he has picked unnecessary fights with the West, provoking hi-tech sanctions before China is close to technology parity. They think he has killed the growth miracle by turning his back on Deng Xiaoping’s market model. Above all, they think he has misjudged the global correlation of forces. And they are waiting for him to trip.