Ukraine with many of the same components—cameras, motors, transmissions—needed by FPV drones. But nearly all of their assembly is now Ukrainian. Russia, Ukraine knows, will always be first in the queue. Russia’s weapons and ammunition factories are almost entirely reliant on Chinese computer-numerical-control machine tools. The Jamestown Foundation, a Washington-based think-tank, estimates that around 90% of Russian machine-tool imports are now from China. According to Western officials, Russia also depends heavily on China for nitrocellulose, the cotton-derived feedstock that is the propellant for artillery shells, tank rounds and missiles. Russia produces its own at a handful of explosives factories (which the Ukrainians target) but not nearly enough for its wartime needs. Turkey, through various intermediaries, provided about half of Russia’s imports of nitrocellulose until recently, but the firms involved are now subject to heavy sanctions. Consequently China, allege the Western officials, is ramping up its sales of nitrocellulose to Russia through the Norinco Group, a massive state-owned armaments firm, which uses a pair of subsidiaries. The company has not commented publicly on this. China insists that nitrocellulose is a product needed for paints and lacquer. To maintain the obfuscation, the four main Russian gunpowder factories reportedly run sister civilian operations. Norinco, Western officials say, tries to conceal sales behind shell companies and foreign intermediaries. China is also stepping up its exports of cotton pulp and cotton cellulose from which nitrocellulose is made. Nearly all of Russia’s cotton pulp previously came from Uzbekistan and Kazakhstan. But packages of sanctions introduced last year and this year by the European Union on designated Uzbek and Kazakh exporters have begun to have some impact. There is little likelihood of China reducing its support for Russia’s war machine. Chinese firms are earning handsome profits while Russia provides cheap oil and gas in return. The polite fiction of “dual use” has been artfully maintained. Moreover, to the satisfaction of China’s leaders, it seems certain that after the end of the war in Ukraine, Russia will remain a needy junior partner, dependant on China. ■
Subscribers can sign up to Drum Tower, our new weekly newsletter, to understand what the world makes of China—and what China makes of the world. This article was downloaded by zlibrary from https://www.economist.com//china/2026/05/20/how-china-quietly-helps-russia-in- ukraine
What China can learn from Japan about escaping deflation The right kind of Japanification May 21st 2026 JAPAN’S POST-WAR manufacturing miracle provided a template for China to copy. Japan’s “lost decades” after 1990 served as a cautionary tale to avoid. Since the covid-19 pandemic and the war in Ukraine, Japan has left deflation behind, even as China has fallen victim to it. As China now contends with similar disruption from the war in the Gulf, could it learn lessons from Japan’s example? After its property bubble burst in the early 1990s, Japan’s economy was stuck with heavy debts, lacklustre spending and falling prices. The country became synonymous with deflation. But in 2022 Japan and China traded places. China’s inflation rate fell below that of its smaller, greyer neighbour
and stayed there (see chart). The role reversal was later confirmed by the bond markets, which are acutely sensitive to the inflation outlook. Late last year yields on ten-year Chinese government bonds dropped below Japan’s for the first time in data stretching back over 20 years. This was not good news. Although nobody likes high inflation, its opposite can also be a sign of trouble. China’s spell of deflationary pressure, like Japan’s, follows a property bust. Developers defaulted on excessive debts and construction faltered. A deep decline in property values depleted household wealth and confidence. The result was a shortfall in domestic spending, putting downward pressure on prices. In October 2022 producer- price inflation turned negative. It remained below zero for the next 40 months. Deflation can also be a cause of trouble. When prices fall, debts weigh more heavily, pay packets shrink, and households and firms hoard cash and defer purchases because they expect goods and services to be cheaper in the future. In Japan central bankers complained about the country’s “deflationary mindset”. Prices stagnated partly because everyone expected them to. Inflation did not loom large in pay talks.
It took two huge jolts to the global economy to shake Japan out of this mindset. The covid-19 pandemic and the invasion of Ukraine strained worldwide supply chains. The jump in global prices, amplified by a further drop in the yen, became impossible to ignore. Ahead of pay negotiations in 2023, Rengo, Japan’s leading trade-union federation, asked for a 3% rise in base pay (excluding seniority adjustments), its highest demand in 28 years. Cost increases, driven by global events, translated into higher wage claims, creating momentum for further price rises. Will China follow such a path? Another big shock—the war in the Gulf— has driven up the price of energy and related goods. In March producer-price inflation turned positive for the first time since 2022. In April it increased to 2.8%, an even bigger jump than expected. This “cost-push inflation”, associated with the war, came on top of some “demand-pull inflation” created by the global AI spending boom. China’s manufacturers have benefited from the rush to build data centres and power grids. They produce much of the “unsexy but necessary” kit that supports high-end server farms, including pumps, fans and other electrical machinery, as Thomas Gatley of Gavekal Dragonomics, a research firm, has pointed out. Some forecasters think exports of goods could grow by 10% this year in dollar terms. In principle, this could create a virtuous cycle, by boosting employment, wages, spending and prices. Unfortunately, the industries benefiting from the AI and energy “super- cycle” tend to be capital-intensive, notes Robin Xing of Morgan Stanley, a bank. Their success does not, then, generate big increases in employment. China’s resilient export machine is no longer a reliable jobs machine. One consequence is that China’s success abroad has not boosted morale at home. The property market (despite some favourable signs in Shanghai and a few other prosperous cities) is still in the doldrums. The job market is weak and consumers are wary. Retail sales rose by just 0.2% in April, compared with a year earlier, before adjusting for inflation. China’s reflation therefore remains narrow. It is largely confined to upstream inputs such as energy, petrochemicals and metals like copper. Industries that use these inputs are feeling the strain. The volume of crude oil processed in
China fell by 5.8% in April compared with a year earlier. Industrial production overall slowed to 4.1% from 5.7% in the previous month. Moreover, a monthly survey of managers in services and construction suggests that sales prices remain under downward pressure. The factory-gate prices charged for consumer goods are still falling at much the same pace as before. Workers may grumble about higher prices for petrol. But unlike Japanese workers in 2023, they lack the bargaining power to demand higher wages in compensation. Another distinction from Japan lies in the temperament of policymakers. As inflation picked up in Japan, the government did its best to maintain the momentum. At the end of 2023 it introduced tax breaks, subsidies and handouts to ensure what it called a “complete exit” from deflation. Chinese officials do not share this determination. They are reluctant to ease monetary policy, because it could squeeze the profitability of banks. They are also wary of increased fiscal stimulus, given past excesses and rising public debt. Mr Xing no longer expects China’s central bank to cut interest rates this year. Instead of trying to turn wartime price jumps into a broader, durable reflation, China’s policymakers are treating it as an excuse to do less. Japan’s lost decades are a cautionary tale. Its recent efforts to ensure a permanent exit from deflation also hold useful lessons for Chinese officials. But they are in no mood to heed them. ■ Subscribers can sign up to Drum Tower, our new weekly newsletter, to understand what the world makes of China—and what China makes of the world. This article was downloaded by zlibrary from https://www.economist.com//china/2026/05/21/what-china-can-learn-from-japan-about- escaping-deflation
A new Ebola outbreak could be the worst in a decade How to save the safari Is Binyamin Netanyahu facing his last stand? Israel’s economy is booming The mother of the world v the upstart Donald Trump is still looking for a quick fix in Iran
Middle East & Africa | The pathogen crosses borders A new Ebola outbreak could be the worst in a decade Medics know how to respond. But aid cuts, war and the lack of a vaccine make it difficult May 21st 2026 “SINCE APRIL, we’ve seen people dying,” says Sylvie Kabuo-Kinyoma, who sells vegetables in Mongbwalu, a gold-mining town in Ituri, a province in eastern Democratic Republic of Congo. At first she blamed the deaths on witchcraft. But then a nurse spotted a patient with a severe fever who was bleeding from the nose—a sign of Ebola, a virus with a fatality rate of up to 50% that spreads through direct contact with bodily fluids. “We’re afraid,” says Ms Kabuo-Kinyoma. “I don’t want to lose my children.” On May 17th the UN’s World Health Organisation (WHO) said the outbreak was a “public health emergency of international concern”, only the ninth
such declaration since 2005. It has not been called a pandemic, but it is shaping up to be the worst Ebola epidemic since at least 2018, when more than 2,000 people died in eastern Congo. Some experts worry it could be as bad as in 2014-16, when an epidemic in west Africa killed 11,000. That is because of a fatal blend of bad luck, a country at war and a world cutting health aid. By May 20th there had been nearly 600 suspected cases and 139 deaths in Congo. There have almost certainly been more, according to modelling by the MRC Centre for Global Infectious Disease Analysis, an institute at Imperial College in London. The WHO reckons the virus has been circulating for a couple of months at least. Two Congolese nationals have been diagnosed with it in Kampala, the capital of neighbouring Uganda. An American doctor working in the area was also found to have the disease and has been evacuated to Germany. There have also been cases in Goma, the capital of North Kivu, a Congolese province to the south of Ituri (see map). Rwanda has reportedly closed some border crossings with Congo. Public- health experts worry the disease could spread to Burundi and South Sudan. Since the west African disaster, governments and international bodies have vastly improved how they respond to the spread of the virus. Vaccines against the most common strain, Zaire, have allowed medics to isolate