Pakistan is considering replacing the U.S. dollar with the Chinese yuan for bilateral trade between Pakistan and China, Pakistan"s Minister for Planning and Development Ahsan Iqbal said according to Dawn Online and The Economic Times. Interior Minister Iqbal, who has been central to the planning and implementation of China-Pakistan economic ties, was reported discussing the proposal after unveiling a long-term economic development cooperation plan for the two countries, Reuters added.
Iqbal spoke to journalists after the formal launch of Long Term Plan (LTP) for the China-Pakistan Economic Corridor (CPEC) signed by the two sides on November 21, Dawn online reported on Tuesday. The CPEC is a flagship project of China"s Belt and Road initiative. The 3,000 km, over $50 billion corridor stretches from Kashgar in western China to Gwadar port in Pakistan on the Arabian sea.
Asked if the Chinese currency could be allowed for use in Pakistan, the minister said the Pakistani currency would be used within the country but China desired that bilateral trade should take place in yuan instead of dollars, in yet another push to de-dollarize what China considers its sphere of influence.
"We are examining the use of yuan instead of the US dollar for trade between the two countries," Iqbal said, adding that the use of yuan was not against the interest of Pakistan. Rather, it would "benefit" Pakistan.
It would also show that world that when it comes to Asia, the "superpower" of significance is no longer the US. And so, as China"s influence grows, the long-term plan highlighted key cooperation areas between the neighboring states including road and rail connections, information network infrastructure, energy, trade and industrial parks, agriculture, poverty alleviation and tourism.
The CPEC plan marks the first time the two countries have said how long they plan to work together on the project, taking the economic partnership to at least 2030. China has already committed to investing $57 billion in Pakistan to finance CPEC as part of Beijing’s “Belt and Road” initiative to build a new Silk Road of land and maritime trade routes across more than 60 countries in Asia, Europe and Africa.
Addressing the launching ceremony Chinese Ambassdor to Pakistan Yao Jing said the long term plan would expand the scope of cooperation in various new areas, including cooperation in social sectors along with economic fields. “CPEC was a national plan approved by the both the Chinese and Pakistan government.” It will effectively match relevant national plans of China as well as Pakistan Vision 2025."
The two nations also agreed to establish and improve cross-border credit system and financial services, strengthen currency swap arrangements as well as establish a bilateral payment and settlement system.... in yuan that is, not dollars.
One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.
In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.
Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.
Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.
Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.
Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.
BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.
“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”
Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.
The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.
Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia
National Security and Financial Terrorism
At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.
And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.
Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:
“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”
As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.
1800 Tonnes and Counting
From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.
Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.
According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.
With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.
The Bank of Russia now has 1801 tonnes of gold in its official reserves
A threat to the London Gold Market
The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.
However, ‘gold’ trading in London and on COMEX is really trading of very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.
While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.
Conclusion
It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.
The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.
When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.
One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.
In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.
Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.
Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.
Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.
Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.
BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.
“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”
Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.
The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.
Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia
National Security and Financial Terrorism
At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.
And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.
Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:
“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”
As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.
1800 Tonnes and Counting
From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.
Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.
According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.
With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.
The Bank of Russia now has 1801 tonnes of gold in its official reserves
A threat to the London Gold Market
The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.
However, ‘gold’ trading in London and on COMEX is really trading of very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.
While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.
Conclusion
It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.
The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.
When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.
As reported first thing this morning, China"s President Xi Jinping outlined his vision for the next five years, ushering in a "new era" (a term he repeated 36 times) of development in China, as the Communist Party’s 19th Congress opened in Beijing on Wednesday. During a 3½-hour long speech, Xi said the internal and external situations facing China were undergoing complicated changes which the party needed to address. Xi started with the opening remark that “the prospects are bright while the challenges are also grave”, before reminding his audience of his achievements over the past five years, which included: poverty reduction, strengthening the one party rule, national security, cutting down pollution and the Belt and Road infrastructure initiatives. One can also throw in "nationalizing China"s capital markets" in this list.
Further, as DB"s Jim Reid wrote overnight, Xi"s anti-graft drive has achieved an “important and irreversible’ momentum and he insisted that China has ‘zero tolerance” on corruption. On the long term, he wants to set the agenda for the country to be “a modern, socialist power” by 2050. On the economy, he says the liberalisation of both interest rate exchanges will continue as "the door China opened will not close but willopen wider and wider".
Elsewhere, Xi wants China to make the "quality and efficiency" of growth a priority and deepen supply side reforms as well as insisting on the need to reduce excessive capacity and debt ratios. On housing, he said "houses are for people to live in, not for speculation" and he promised to provide more homes through a variety of different channels.
Before his formal address, Deputy central bank chief Pan also noted that he expects that the Yuan will have a more secure foundation after the congress allowing the central bank to push exchange rate market reforms.
Xi also vowed to step up ideological guidance within the party, strengthen its anti-corruption campaign, retain the government’s grip on Hong Kong and Macau, and oppose any moves towards independence in Taiwan.
Courtesy of SCMP, here are the seven major takaways from Xi"s report:
1. A new name for Xi’s political philosophy
Xi said China has formed “socialism with Chinese characteristics for a new era”. The idea will be the guiding principle for the country’s development in the coming years. The slogan was released amid speculation about how Xi’s political thought would be enshrined into the party’s constitution. There are 14 elements behind the concept, with one key idea being that the party should lead in every aspect of life in China.
Xi said the dream of national rejuvenation would only be a fantasy without the leadership of China’s Communist Party. The party should lead in all areas and the authority of the party central leadership should be respected, he said. Cadres should keep in line with the party leadership, while the party should tighten its lead on ideological work. “The party resolutely opposes all attempts that will weaken, distort or reject the leadership of the party and the implementation of socialism,” he said adding that a “principal contradiction” had emerged in Chinese society because of uneven development and the public’s demand for a better life.
2. Becoming a nation with leading, global influence by 2050
Xi laid out some ambitious targets for the next 30 years and more. The first batch should be achieved from 2020 to 2035, Xi said. China will be a top ranked innovative nation by 2035 with a large middle-income population and narrower wealth gap. China’s soft power should be boosted, Xi said. From 2035 to 2050, China should become a nation with pioneering global influence.
3. Keeping up with the “irreversible” momentum of anti-corruption campaign and maintaining the rule by law
China will set up a leading group for comprehensive rule by law. Xi repeatedly talked about the concept during his speech and vowed the party and the government would rule the country under the law and through public oversight. No one would be able to put themselves above the law, he said. He added that China must watch out for any attempt to copy Western-style democracy.
Xi also issued a warning to delegates at the Great Hall of the People on corruption, saying China insists on “zero tolerance” of graft. He said the government has been unswerving in “fighting tigers, destroying flies and hunting down foxes”, referring to the government’s sweeping anti-corruption campaign. He said a national supervision law would be formulated and shuanggui – a party disciplinary practice – would be replaced.
4. Protecting national sovereignty
China’s capability to deal with national security should be boosted as the nation will resolutely protect its sovereignty and interests. Xi said China has made a “historical breakthrough” in national defence and military reform. The navy has protected the nation’s maritime interest and its army rapidly upgraded its weaponry. For the coming years, China will continue pushing for integration between the civilian and the military sector. The People’s Liberation Army should be a “world class” force by 2050. China also opposes separatism under the guise of religion or extremist thought, Xi said.
5. Upholding central government authority over Hong Kong and Macau and opposing Taiwan independence
Xi said the “one country, two systems” principle will not be changed nor distorted in Hong Kong. The central government’s jurisdiction over the two Special Administrative Regions, which also includes Macau, should not be shaken, he said. On Taiwan, Xi said Beijing has properly handled the changing situation facing the island and will continue to resolutely oppose any move to seek independence for Taiwan.
6. Creating a level playing field for foreign businesses
Countering foreign diplomats and business concerns that the government was blocking overseas investment, Xi said China would give equal treatment to all businesses. “The China which has opened up will not close, but will open wider and wider,” he said. China’s GDP has increased from 54 trillion yuan (US$8.2 trillion) five years ago to 80 trillion yuan and the government would aim for growth that is of higher quality and sustainable, he said.
7. Protecting the public interest
Fighting poverty was crucial for China to become a moderately prosperous society, Xi said. All provinces which are under the poverty line should climb above that threshold by 2020. He also pledged to create more jobs for college graduates and migrant workers. Addressing concerns over rising property prices, Xi said houses were for people to live in, not for speculation.
* * *
Not enough? Then here are 6 more key highlights, this time from Goldman"s China economist, Yo Song, who writes that "overall the report sent few new signals on either near-term cyclical policy or longer term structural policy, in our view, although there are a few changes/ highlights/ new concepts to note, which we outline below."
Change in the “principal contradiction facing Chinese society,” which is usually viewed as the guidance on the Party"s key area of focus. In the report, Xi said that “the principal contradiction facing Chinese society has evolved to be that between unbalanced and inadequate development, and the people"s ever-growing needs for a better life,” a change from previously, “the principal contradiction in our society is still between the ever-growing material and cultural needs of the people, and the backwardness of social production.” (This statement had been in place since 1981.) We view this change in “principal contradiction” as an acknowledgement of the need for more efficient and balanced economic development. Instead of purely focusing on the speed of economic growth, policy makers now also emphasize higher productivity, higher profitability, more innovation and efficient distribution, as well balanced development between urban and rural areas, and among different regions of the country. This is also consistent with the tone from policy makers in recent years (e.g., the “new norm” from Xi, and “focusing on not just the quantity but also the quality of development” in the Central Economic Working Conference).
Xi’s thoughts on socialism with Chinese characteristics for a new era. The report came up with thoughts on socialism with Chinese characteristics for a new era, which should be effectively a summary of Xi’s thoughts and will likely be incorporated into the Party Constitution during the Congress. There are 14 fundamental principles, which have been mentioned previously in different situations, with the first being “ensuring Party leadership over all work.” On economic areas, Xi mentioned “continuing to comprehensively deepen reform and “adopting a new vision for development,” which reiterated Xi’s five development concepts (i.e., innovation, coordination, green development, opening and sharing), and reemphasized letting the market play a decisive role in resource allocation. Environmental issues are listed as a separate principle under “ensuring harmony between human and nature,” and the report mentioned plans to “implement the most rigorous ecological and environmental protection system.”
A new two-stage development plan. In the report, Xi emphasized importance of the period up to 2020 as "the decisive stage in building a moderately prosperous society," and said that "all requirements on building a moderately prosperous society from the 16th, 17th, 18th Party Congress must be followed." Presumably, this would include the goal of doubling income by 2020 established in the 18th Party Congress, though it was not explicitly mentioned here. Then Xi proposed a two-stage development plan from 2020 to the middle of the 21st century, with the first stage from 2020–2035 to see that socialist modernization is basically realized, and the second stage from 2035 to the middle of the 21st century to develop China into a great modern socialist country. However, there are no quantitative details in the plan currently.
Characterizing the economy as turning from a high-growth phase to a high-quality development stage. The report also mentioned building a modern economic system. Major measures for this include deepening “supply side” reforms (e.g., reiterating key structural tasks such as over-capacity cuts and de-leveraging), strengthening innovation, promoting SOE reforms with mixed ownership, developing a twin policy management framework with both monetary policy and macro-prudential tools, “significantly” loosening market access to domestic service sectors and protecting foreign enterprises’ legal rights in China.
Other highlights included a proposal to establish a central leading working group on the comprehensive rule of law, although the exact form of the group has not yet been specified. In social areas, Xi highlighted a policy intention to widen the coverage of education, reduce income gaps between low- and high-income groups, strengthen social protection (e.g., retirement, unemployment), reduce poverty and deepen ongoing medical service reforms. He also reiterated that, “houses are for living, not for speculation” and mentioned plans to “speed up the development of a housing system with supply from multi entities, protection from multi channels and combination of rental and sale.”
The next publication will be the list of Central Committee members on Oct 24, followed by revealing of appointments to the Politburo Standing Committee on Oct 25.
The above was summarized best by UBS" chief economist, Paul Donovan, in just one sentence: "China"s economic challenge is that the successful model of the last twenty years will not work in the next twenty years."
“Not sure whether China will be nice to self-ruled Taiwan? Wait until after the 19th National Congress of the Communist Party.
What’s in store for the hotly disputed, resource-rich South China Sea, where Beijing has taken a military and technological lead since 2010? Wait until after the Congress.
Coffee maker wouldn’t start today? Wait until after the Congress.
Wait. But you get the idea: This event, due to start Oct. 18, is monumental enough to put a lot of Asia on hold — and make it worry.”
That’s how Ralph Jennings opened his piece for Forbes on Wednesday. Humor aside, the point he’s making is the same one I made at the end of September — that China’s upcoming National Congress is a really big deal.
China sets the regional tone on nearly all matters, as Jennings points out in his article:
"Chinese foreign and economic policies shape much of Asia. China’s ever-growing efforts to build and fund infrastructure around the subcontinent through initiatives such as One Belt, One Road have obvious impact on smaller countries that might otherwise struggle to finance their own projects. Neighbors from Japan to India are watching China for foreign policy cues that affect their iffy diplomatic relations with the region’s major power.”
But China’s geopolitical influence extends far beyond Asia. The country has long been viewed as the rising global superpower on pace to dethrone the United States. Much has been written and said about China’s willingness to embrace this role as more and more countries turn to it for guidance.
China is highly conscious of this trend. It feels the world’s eyes aimed squarely in its direction and very much wants everything at the upcoming Congress, during which President Xi Jinping is expected to be reaffirmed as leader and appoint his own trusted allies to key positions of power, to go smoothly.
This is why, as I pointed out last month, the Chinese government has implemented a system-wide crackdown - both in the streets and in cyberspace - on political dissent ahead of the Congress. It all goes back to perception and the desire to present to the world the “One China” the country’s government says exists.
But perhaps there’s even more to it than that. It may be that once power is further solidified under Xi at the Congress, China will be ready to fully embrace the role of world leader. On Wednesday, its state-run Xinhua News Agency ran an article titled “China offers wisdom in global governance,” which opened with the following:
“With its own development and becoming increasingly closer to the center of the world stage, China has been injecting positive energy into the international community in pursuit of better global governance over recent years.”
Xinhua writes that China’s leadership ability is already well-established and that even though it’s currently undergoing a restructuring of its own, its vision for the world is one rooted in peace and innovation:
“As the world’s second largest economy and the biggest contributor of global economic growth, China’s innovative concepts on improving global governance and promoting global peace and common prosperity have gained wide recognition and support from other countries.
“Undergoing structural reforms, China is implementing its new concept of innovative, coordinated, green, open and shared development, eyeing a quality growth model driven by innovation.
“Meanwhile, the country is assuming its international responsibility to promote common development with other countries in the interconnected world.”
Continuing, Xinhua points to international acceptance of One Belt, One Road as evidence of China’s ability to take the lead in adapting to the modern era:
“The Belt and Road Initiative, building a community of shared future for mankind and the principle of extensive consultation, joint contribution and shared benefits, all proposed by China, have been incorporated in U.N. resolutions, showing wide international consensus on the concepts.
“Equality, mutual respect and win-win cooperation feature in the Chinese plans, which also safeguard the irreversible trend of globalization.”
This “win-win cooperation” is China’s guiding principle, Hu Angang of Tsinghua University in Beijing, told Xinhua. He even dubbed the philosophy “win-winism,” as the state news organ explains:
“’Win-winism’ highlights an open world economy for common development of all countries and joint efforts to address global challenges such as climate change and terrorism, and exchanges of different cultures, said the researcher.”
Xinhua goes on to write that Liu Wei, president of Renmin University of China, says the country has taken the lead by “putting forward new concepts, thoughts and plans to reshape the global governance system.”
With China in the spotlight ahead of the National Congress, it shouldn’t be taken lightly that the superpower would allow such bold language by one of its state mouthpieces. Indeed, it could be that a post-Congress China will be a far more assertive player on the world stage.
The EU’s policy of “replacement migration” is an economic failure and threatens to undermine China’s New Silk Road strategy for Europe by diminishing the continent’s much-needed consumer market potential, which should thereby serve as an impetus for Beijing to consider investing in social programs there as a means of encouraging replacement fertility for the EU’s citizens.
The Roots Of “Replacement Migration”
The EU’s liberal-progressive ruling elite aided and abetted the Migrant Crisis as a means of encouraging “replacement migration” to compensate for their falling populations, naively believing in the dogma of their bloc’s de-facto “Cultural Marxist” ideology that civilizationally dissimilar migrants will seamlessly adapt to their new host societies and quickly become productive citizens. They expected that the relatively impoverished and in many cases largely uneducated “New Europeans” from Africa, the Mideast, and South Asia who have uncontrollably flooded into Europe would have no problem climbing the ladder of socio-economic success in one day replacing their dying European counterparts in all professional spheres.
It should also be reminded in this vein that these “New Europeans” didn’t just appear out of nowhere, but are the product of the unipolar wars that created them in the first place and the NGO-assisted human trafficking networks that then imported these “Weapons of Mass Migration” to Europe, both activities of which the EU elite have been complicit in. As could have been anticipated by any objective observer not under the influence of “Cultural Marxism”, this irresponsible multi-layered policy has totally failed in its presumed economic intentions, though it’s cynically succeeded in planting the seeds for a massive socio-cultural reengineering of some leading European countries’ demographics.
China’s Strategic Stake In The EU
While one might be led to immediately think that the consequences of this epic disaster would be limited solely to the bloc’s borders, few people realize that it will also affect China’s grand strategy by eventually depriving Beijing of the robust consumer-driven marketplace that it needs from the EU in order to make its large-scale infrastructure investments there worthwhile. China’s One Belt One Road global vision of New Silk Road connectivity is driven by Beijing’s desire to develop and secure new consumer markets to which it could offload its overproduction, as the failure to do so would with time lead to socio-economic consequences in the People’s Republic as state-sponsored firms are forced to lay off countless workers if they dramatically downscale production or can’t make ends meet anymore.
The New Eurasia Land Bridge Economic Corridor
The Eurasian Land Bridge, the Silk Road connectivity project through Kazakhstan and Russia, as well as the Balkan Silk Road through Greece all the way up to Central Europe, are intended to connect China’s East Asian producers with Western European consumers, but if Europe is no longer the consumption powerhouse that it once was after a decade of “replacement migration”, then the whole strategy is nullified with potentially disastrous consequences for Beijing. Although it’s “politically incorrect” to admit as much in the West, the “New Europeans” from the Global South consume more in government subsidies than they do in actual products, and when – or in many cases, if – they enter the labor force, it’s usually in low-end and low-paying sectors which aren’t in any way capable of replacing the ever-aging consumers that are steadily dying out.
In addition, many of the “New Europeans” self-segregate themselves by refusing to assimilate and integrate into their host countries, which in and of itself increases domestic tensions even without considering the crime wave that some of them have helped contribute to. When the newly imported “replacement population” does acquire a little bit of extra money to spend on the economy, they’re more prone to patronize local neighborhood stores run by their fellow ethnic or religious compatriots (usually migrants themselves) inside of their anchor communities. Altogether, these socio-economic habits undermine the whole Silk Road spirit of inclusivity and are extremely problematic for China because of the country’s future dependency on EU consumption trends remaining as traditionally strong as they used to be.
Looming Problems
Left unchecked, “replacement migration” in the EU will inevitably lead to a decrease in the bloc’s economic prowess, which in turn will jeopardize China’s grand strategy of using its New Silk Roads – and especially the EU-Chinese vectors of the Eurasian Land Bridge and Balkan Silk Road – as a vehicle for realigning global trade patterns and therefore building the sustainable framework for the emerging Multipolar World Order. In what could be seen as both a blessing and a curse, however, the rise of populist sentiment in the EU could divert the bloc’s present globalist trajectory towards a more “nationalist” course in both of its interlinked socio-cultural and economic manifestations. On the one hand, the masses might succeed in pressuring the elite to downscale or outright suspend their “replacement migration” policies, but on the other, they might also naturally advocate for semi-protectionist trade measures such as the “investment screening framework” that European Commission President Jean-Claude Junker recently proposed.
This initiative aims to give EU governments the power to selectively prevent the sale of strategic economic assets to foreign state-controlled or state-funded companies and is generally thought to be directed against China. Although grounded in plausible national security concerns and already implemented to varying extents in some EU and non-EU countries, the timing and nature of Junker’s proposal suggests that he’s more interested in capturing European markets for the bloc’s leading German, French, and Italian companies by crafting legislation which could deny their Chinese competitors equal access to them. Even though it’s being spearheaded by one of the EU’s most reviled bureaucrats and outspoken enemies of populism, this motion is expected to enjoy a surprising level of grassroots support because of its superficial channeling of populist energy, particularly as it relates to the perception of non-European foreigners taking over the continent.
China is therefore presented with a dilemma because it arguably stands to lose in the long-term if the “Cultural Marxist” policy of “replacement migration” is allowed to mature and begin systematically degrading the EU’s consumer market capabilities, but it also gains from the associated globalist policy of allowing unregulated investment from Chinese state-affiliated companies into strategic EU industries. From the reverse perspective in respect to populism, China’s Silk Road strategy would be safeguarded if “replacement migration” was done away with and replaced with populist initiatives encouraging the increased fertility of a nation’s population, though Beijing needs to be wary of the “economic nationalism” manifestation of populism which could see severe restrictions placed on its plans to invest in more of the EU’s strategic industries and maintain access to their national markets.
A Populist Solution For The Silk Road
The best approach that China could follow in encouraging higher birthrates in its top Silk Road target market while simultaneously pioneering creative ways for its state-linked companies to ingratiate themselves with their host states is to replicate the West’s new economic model in the “Third World” but apply it to European “First World” conditions. What’s meant by this is that China should “sweeten its deals” with the promise of investing in, or dispersing grant money to, soft infrastructure projects such as schools, healthcare facilities, and job-training programs in order to improve the quality of life of its partner state’s citizens. Western companies rarely implement this strategy like they’re supposed to because they’re more concerned about using it as a public relations ploy for boosting their attractiveness in other markets, and the host governments generally don’t hold them accountable because the ruling party/elite are often bribed through this plausibly deniable money-transferring channel to keep quiet about it.
China, however, doesn’t have to fall into this short-term trap and could order its state-linked companies to adhere to this model like it was originally intended in improving the living conditions of the recipient state and “winning hearts and minds” because of it. In the context of contemporary populism and with an eye on Beijing’s long-term New Silk Road interests in protecting the EU’s future consumer market potential, China could even subsidize (whether openly or discretely) the financial incentives that populist governments hand out to their citizens in encouraging higher fertility. After all, China knows that replacement birthrates produce better consumers than “replacement migration” does, and Beijing’s Silk Road strategy hinges on the EU retaining its impressive consumer market potential. Likewise, populists are against “replacement migration” and in favor of improving their citizens’ fertility, so this theoretically represents a win-win solution for both sides.
Concluding Thoughts
To reiterate the main point being expressed in this proposal, China needs to find a way to confront the dual challenges of the expected drop in the EU’s consumer market potential following the “successful” implementation of its “replacement migration” policy and also devise a creative strategy for preventing its state-affiliated companies from being denied access to the bloc’s strategic industries due to superficially populist initiatives such as Juncker’s “investment screening framework”. This necessitates that China craft a comprehensive policy which highlights its value-added differentiators in appealing to the rising populist zeitgeist in Europe, one which has already seen the Central European countries of Poland and Hungary promote higher birthrates through state subsidies and could probably become the continental standard in the next decade if the failed policy of “replacement migration” is eventually replaced. That said, this could only happen if the EU countries experience a surge in births across the coming decades, but many of them might not be able to afford the social costs that that this entails and would therefore have to look abroad for financial support if want to have any chance at sustainably implementing this proposal.
Therefore, the ideal win-win solution that China and the populists (whether in each individual EU country or the bloc as a whole) could forge with one another would be if Beijing agrees to an arrangement to bankroll an ambitious fertility-increasing policy and its attendant social requirements (schools, healthcare facilities, job-training programs, etc.) in exchange for continued and preferential access to their strategic industries and markets. Considering how far behind the EU’s population replacement rate is, then China and its partners should set the bar high by aiming for a three-child policy that the People’s Republic would help pay for by channeling its “communist spirit” to redistribute some of its state-supported companies’ wealth to the host country’s citizenry so as to ensure Beijing’s long-term interests with respect to the Silk Road. So long as China can succeed in preserving the EU’s consumer market strength and even enhancing its capacity, then Beijing won’t have much to worry about regarding its long-term strategy for Western Eurasia, but if the “Cultural Marxists” win by having “replacement migration” ruin all of this, then China will face a major threat which could jeopardize its future global leadership plans.
Two days after the WSJ confirmed Maduro"s earlier threat that he would stop accepting US Dollars as payment for crude oil imports, Venezuela has done just that.
As a reminder, and as we reported previously, in an effort to circumvent U.S. sanctions, Venezuela told oil traders that it will no longer receive or send payments in dollars. As a result, oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.
Furthermore, Venezuela"s state oil company Petróleos de Venezuela SA, or PdVSA (whose bankruptcy is fast approaching), told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner. The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, "To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar."
Fast forward to today, when according to a statement on the Venezuela oil ministry, the country"s weekly crude oil and petroleum basket "will be published in Chinese Yuan" - oddly, not in Euros as the WSJ hinted - going forward. We can only assume that Venezuela avoided the European currency on concerns that Brussels may follow in D.C."s footsteps and impose financial sanctions on the Maduro regime next. Which meant that the only "safe" currency to transact in, was that of the country"s two big sources of vendor (and commodity) financing: China and Russia. For now Venezuela has picked the former.
The ministry also unveiled a price of 306.26 Yuan per barrel for the week of Sept. 11-15, up 1.8% from the 300.91 in the previous week, saying "the more favorable outlook on world oil demand and reports of lower global production contributed to the strengthening of crude oil prices this week."
As for the more relevant topic, Venezuela"s abdication of the US dollar, whether permanent or temporary - until the US finds a way to intervene and restore normalcy - Nomura debt analyst Siobhan Morden warned that "you can say whatever you want for your domestic propaganda and make it look like you’re retaliating against the U.S.... this political posturing will only be to their detriment.”
It remains to be seen if president Trump will use today"s official switch by Venezuela to a PetroYuan as justification for a more "aggressive" foreign policy posture.
“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”
“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar. Clearly, Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold.
This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.
The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.
To promote their strategic partnership, Russia and China – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now. Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).
Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.
Sections of the War Party in Washington bent on instrumentalizing India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.
* * *
Finally, having threatened China just this week with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly the US war machine). So will calls for a Venezuelan invasion now commence, if for no other reason than to teach any other nation contemplating a similar move that it will simply not be allowed?
Venezuelan President Nicolas Maduro said Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week, Reuters reports. According to the outlet, Maduro will look to use the weakest of two official foreign exchange regimes (essentially the way Venezuela will manage its currency in relation to other currencies and the foreign exchange market), along with a basket of currencies.
According to Reuters, Maduro was referring to Venezuela’s current official exchange rate, known as DICOM, in which the dollar can be exchanged for 3,345 bolivars. At the strongest official rate, one dollar buys only 10 bolivars, which may be one of the reasons why Maduro wants to opt for some of the weaker exchange rates.
“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.
Maduro hinted that the South American country would look to using the yuan instead, among other currencies.
“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.
Venezuela sits on the world’s largest oil reserves but has been undergoing a major crisis, with millions of people going hungry inside the country which has been plagued with rampant, increasing inflation. In that context, the recently established economic blockade by the Trump administration only adds to the suffering of ordinary Venezuelans rather than helping their plight.
According to Reuters, a thousand dollars’ worth of local currency obtained when Maduro came to power in 2013 is now be worth little over one dollar.
A theory advanced in William R. Clark’s bookPetrodollar Warfare – and largely ignored by the mainstream media – essentially asserts that Washington-led interventions in the Middle East and beyond are fueled by the direct effect on the U.S. dollar that can result if oil-exporting countries opt to sell oil in alternative currencies. For example, in 2000, Iraq announced it would no longer use U.S. dollars to sell oil on the global market. It adopted the euro, instead.
By February 2003, the Guardian reported that Iraq had netted a “handsome profit” after making this policy change. Despite this, the U.S. invaded not long after and immediately switched the sale of oil back to the U.S. dollar.
In Libya, Muammar Gaddafi was punished for a similar proposal to create a unified African currency backed by gold, which would be used to buy and sell African oil. Though it sounds like a ludicrous reason to overthrow a sovereign government and plunge the country into a humanitarian crisis, Hillary Clinton’s leaked emails confirmed this was the main reason Gaddafi was overthrown. The French were especially concerned by Gaddafi’s proposal and, unsurprisingly, became one of the war’s main contributors. (It was a French Rafaele jet that struck Gaddafi’s motorcade, ultimately leading to his death).
Nuclear giants China and Russia have been slowly but surely abandoning the U.S. dollar, as well, and the U.S. establishment has a long history of painting these two countries as hostile adversaries.
Now Venezuela may ultimately join the bandwagon, all the while cozying up to Russia, as well (unsurprisingly, Venezuela and Iran were identified in William R. Clark’s book as attracting particular geostrategic tensions with the United States). The CIA’s admission that it intends to interfere inside Venezuela to exact a change of government — combined with Trump’s recent threat of military intervention in Venezuela and Vice President Mike Pence’s warning that the U.S. will not “stand by” and watch Venezuela deteriorate — all start to make a lot more sense when viewed through this geopolitical lens.
What initially sounded like a conspiracy theory seems to be a more plausible reality as countries that begin dropping the U.S. dollar and opting for alternative currencies continuously — and without exception — end up targeted for regime change.
If the U.S. steps up its involvement in Venezuela, the reasons why should be clear to those who have been paying attention.
* * *
This moves comes just days after The BRICS Summit where Putin unveiled his "fair multipolar world," which culminated, as Pepe Escobar explained, in the following
Meet the oil/yuan/gold triad
It’s when President Putin starts talking that the BRICS reveal their true bombshell. Geopolitically and geo-economically, Putin’s emphasis is on a “fair multipolar world”, and “against protectionism and new barriers in global trade.” The message is straight to the point.
The Syria game-changer – where Beijing silently but firmly supported Moscow – had to be evoked; “It was largely thanks to the efforts of Russia and other concerned countries that conditions have been created to improve the situation in Syria.”
On the Korean peninsula, it’s clear how RC think in unison; “The situation is balancing on the brink of a large-scale conflict.”
Putin’s judgment is as scathing as the – RC-proposed – possible solution is sound; “Putting pressure on Pyongyang to stop its nuclear missile program is misguided and futile. The region’s problems should only be settled through a direct dialogue of all the parties concerned without any preconditions.”
Putin’s – and Xi’s – concept of multilateral order is clearly visible in the wide-ranging Xiamen Declaration, which proposes an “Afghan-led and Afghan-owned” peace and national reconciliation process, “including the Moscow Format of consultations” and the “Heart of Asia-Istanbul process”.
That’s code for an all-Asian (and not Western) Afghan solution brokered by the Shanghai Cooperation Organization (SCO), led by RC, and of which Afghanistan is an observer and future full member.
And then, Putin delivers the clincher;
“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”
“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.
This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan.
Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.
The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.
RC – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now.
Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).
Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.
Sections of the War Party in Washington bent on instrumentalizing India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.
Last week, China bypassed the World Trade Organisation agreements and using an old law officially launched a probe into Americas intellectual property practices.
China"s foreign affairs minister, talking of America, stated that:
"We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”
Reiterating this stance, a Chinese Communist Party spokesman went on to say:
“The economic war with America is everything and we have to be maniacally focused on that.”
“If we continue to lose it, we’re five years away, I think, 10 years at the most, of hitting an inflection point from which we’ll never be able to recover.”
China"s president Xi Jinping explained things further:
“It’s my duty and responsibility to protect the Chinese workers’ technology and industry from unfair and abusive actions.”
“We will stand up to any country that unlawfully forces Chinese companies to transfer their valuable technology as a condition of market access. We will combat the counterfeiting and piracy that destroys Chinese jobs.”
Actually, none of that happened. At least not that way around.
Think about it for a minute. Put the shoe on the other foot and it seems outrageous... because, well, it is.
Ok now I"ve just three things to say about this.
1.Whenever a government - who we should remind ourselves is not a producer but rather a consumer of resources - states that they are having "their" intellectual property stolen, this should make the private individuals, corporations stakeholders, and employees of those companies stand up and say: "Whoah! Hang on a second... You don"t own that. I do. What the hell?"
It"s a strange situation where the guy who got a C average in his high school finals and never made it into university but actually runs a business dealing with China can see it makes no sense but a politician with a degree from Oxford cannot.
When some Chinese company copies the iPhone, it"s not Washington"s IP they"re stealing. It"s Apple"s. Nobody wants Washington"s IP because raw sewerage isn"t valuable. That Washington lays claim to the IP of all US businesses should scare the isht out of any US-based company.
Which brings me to my second point...
2. Imagine you"re a US company with most of your value in your business being in IP. Now, imagine further that Washington brings about a trade war. What happens next?
Well, your product has just been cut off from THE world"s fastest growing consumer market in the world, and the decision as to whether or not you would participate in that market was just taken away from you whether you like it or not.
That"s all dandy if you"re 4. Parents need to make those calls for you until you"re emancipated. But you"re a grown adult entirely capable of making that judgement call all by yourself.
A US-led trade war vs. China would be disastrous for tech firms targeting the world"s fastest growing consumer market.
Russia’s second largest trading partner (after Germany)
Africa’s largest trading partner
South America’s largest trading partner
So you see the trend is most certainly established, and this trend is like a supertanker - difficult to turn around. It"s certainly a lot smarter to get on the right side of that trend than to fight it... which is impossible.
The other thing with IP is precisely what I was rabbiting on about in when discussing the coming financial disruption. You see, governments, and the nation state in particular, survives by commandeering assets. Don"t believe me? Stop paying your property tax and find out who exactly owns your house.
This sort of control is kinda easy when the assets are Billy"s steel factory but when it"s something like Vitalik Buterin"s Ethereum platform or Google or Baidu... or any number of the thousands of companies out there where IP forms the largest value component, then things get a wee bit trickier for the nation states.
Moving IP is really very easy. It involves cancelling your gym membership, downloading software onto an encrypted drive in the cloud, and booking a one-way ticket to someplace friendlier.
3. And the third thing... Ok, I lied. I"ve only 2 things to say, though I do think there"s a single reason for all this.
The Real Reason for This Stupidity
While it could backfire more spectacularly than a 50-year old Lada, it"s probably this:
Washington"s strategy to dealing with North Korea has been attempting to get Xi to do the dirty work on that snotty kid next door who"s making them look impotent. It"s silly as I mentioned last week when I explained how brain dead sanctions on young Kim really are, which is all the more reason why politicians will pursue it.
Let me make a suggestion, because let"s face it, I"m not here to do anything other than figure this stuff out and see where and why capital will flow in any particular direction.
Governments, most of them being more broke than Borris Becker after Forbes & Manhattan screwed him over, are coming for our assets. The toughest assets to actually seize are those that live in the "digital world"... which is to say their value is more often than not in intellectual property and as such they can "live" pretty much anywhere.
The Best Investment Tip You"ll Read All Year
If you"ve a business built on IP, then may I suggest that looking NOW, ahead of trouble, for the best domicile could well provide you with the best ROI you"ll ever get.
And I won"t charge you a cent for the advice, though you can send donations to Bitcoin Address: 1LNjVKrv8pT1n5SZxkhNpPN9JPWxMwnHmm
Seriously, though remember Zimbabwe, which I spoke about recently? Well, after Mugabe seized all the fixed assets, they found that without the intellect available (it"d fled) those assets became worthless. And while that"s the case the intellect has moved on. It now provides value in other countries, countries that are more receptive to value.
Late last week, we reported that in the first documented clash between Chinese and Indian soldiers who have been piling up across the border between the two nations over the latest territorial dispute, "Indian and Chinese soldiers were involved in an altercation" in the western Himalayas on Tuesday, "further raising tensions between the two countries which are already locked in a two-month standoff in another part of the disputed border." A Reuters source in New Delhi who was briefed on the military situation on the border, said Indian soldiers "foiled a bid by a group of Chinese troops to enter Indian territory in Ladakh, near the Pangong lake." He added that some of the Chinese soldiers carried iron rods and stones, and in the melee there were minor injuries on both sides.
"There was an altercation near the Pangong lake," said a police officer in Srinagar, the capital of India"s Jammu and Kashmir state, under which the area falls. An army source in Srinagar, quoted by Reuters, spoke of an altercation following what he called a Chinese army "incursion in Pangong lake area". This fresh standoff at Pangong Tso lake in Ladakh comes in the backdrop of tensions between Indian and Chinese troops over Doklam plateau in Sikkim sector with the PLA skipping the ceremonial border meetings on Independence Day.
What is notable about this concerning breakout of violence, is how silent both India and China have been, with neither side issuing an official statement confirming or denying last week"s events.
Overnight, thanks to India"s NDTV, five days after the "unconfirmed" scuffle in Ladakh, a video of the clash has surfaced. The video, which has been widely circulated on social media, shows many soldiers from the two countries punching and kicking each other and throwing stones.
