Chinese President Xi Jinping’s three-day state visit to Moscow, due to begin on Monday , and the failure of Silicon Valley Bank (SVB) and others are unconnected events. Yet, taken together, they hint at a coming shift in the balance of East-West economic power that could prove unexpectedly profound. SVB’s collapse and the distress engulfing Credit Suisse have revealed once again (as did the 2008 global financial crisis) the vulnerability of market economies to financial system crises. The health of a country’s financial system is critical to its economic power and global reach. We now have a situation where China is emerging from lockdown into economic recovery and increasing its global diplomatic clout, while Western economies face a possible systemic financial crisis as they shoulder the growing burden of military spending and post-war reconstruction. Financial system problems will continue to escalate, contrary to the naive belief among many market commentators that all will be well with inflation easing. As I, for one, have pointed out , central banks’ interest rate increases have all but guaranteed financial system distress. As a recent Reuters report said: “There’s no doubting it now – Credit Suisse has made the banking crisis global.” Or, as one analyst at foreign exchange specialist Oanda noted: “Fear has once again gripped markets [that are] concerned about a repeat of past crises.” Contagion spreads rapidly at these times and what makes the situation so volatile is that central banks’ actions to prop up financial institutions through deposit guarantees or equity injections are at odds with their policies to tame inflation. Central banks let inflation rip by ignoring it in the vain hope it would go away, only to engage in overkill by raising interest rates too far and too fast once they realised their mistake. That was embarrassing enough. To reverse course again and start cutting rates would be an admission of abject incompetence. Even if central banks simply paused their actions, the impact lag for monetary policy means the falling values of commercial banks’ fixed-income assets such as bonds are effectively locked in. The only thing that might save the situation is higher lending margins (on the back of higher interest rates), which could raise lenders’ profits, but that will take time and few will be eager to borrow in such a climate. The potential SVB fallout plays directly into US-China rivalry. As Atlantic Council research fellow Hung Tran noted, “the hi-tech start-ups sector will experience growing funding difficulties [ …] This sector is currently needed to sustain the US lead in its competition with China.” The Peterson Institute for International Economics in Washington observed that a “ potential US debt default , threatened by House Republicans demanding budget cuts, would diminish the dollar’s dominance”, “and legitimise the claim by Beijing and Moscow that the United States is a weak and unreliable partner”. This soft underbelly in many Western economies has been hidden from view for more than a decade by a massive cushion of ultra-low interest rates and permissive spending attitudes, all of which is changing dramatically. If an army marches on its stomach, so too do national ambitions; and financial deprivation will rob the stomach of food and the body politic of energy. Even if not by conscious design, President Xi has chosen a good moment to go on the diplomatic offensive in Russia, and in brokering an Iran-Saudi Arabia rapprochement . If Xi, reportedly set for a virtual meeting with Ukraine President Volodymyr Zelensky after meeting Russian President Vladimir Putin, can broker a settlement in the Ukraine war, it could set the stage for a fresh Chinese advance into Europe. China needs a stable Ukraine as a key land link in its Belt and Road Initiative . As a recent report titled “Russia-Ukraine Crisis: China’s Belt Road Initiative at the Crossroads” observed: “Ukraine occupies a strategic location in the BRI, near the intersection of Europe and Asia, rendering it a potential ‘gateway to Europe’.” Douglas McGregor, a retired US army colonel and former government official, said in a recent interview that, “If Ukraine remains unstable [ …] then that one belt, one road project collapses,” referring to the old name for the Belt and Road Initiative. As the report observed, Russia’s invasion of Ukraine disrupts both China’s infrastructure initiative and connectivity in general, upsetting global value chains , weakening free trade, and sharpening food and energy insecurities . But to capitalise fully on what looks like a period of financial fragility in Western economies, China will need to strengthen the structure, credibility and global image of the belt and road. China realises small is beautiful as Belt and Road Initiative turns 10 The project, as Wang Huiyao, president of the Centre for China and Globalization, has pointed out, is largely built around China’s bilateral relations. The main forms of cooperation agreements are bilateral memorandums of understanding (MOUs) and joint statements supporting the initiative. But these agreements have “relatively weak” legal terms: the MOUs typically have short validity periods and signatories can withdraw at any time, Wang noted, adding: “MOUs have become a potentially unstable way for China to codify cooperation with other countries.” As the incipient financial crisis seen in the SVB fallout and other financial system “incidents” spread, and as the ability of Western nations to fund their rival schemes to China’s great infrastructure project is consequently eroded, Beijing needs to take this opportunity to bolster the foundations and institutional infrastructure of the Belt and Road Initiative. Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs