What is covered by discussions about the "yuan zone" in the Middle East
The first decade of December in the Middle East could rightly be called "Chinese". The long (three-day visit from December 7 to 9) of the Chinese leader to Saudi Arabia provided not only and not so much an exchange of views on the situation in the world and packages of investment agreements, but also the formation of an equally long line of joint policy.
Many see the agreement on the transition to settlements for deliveries in Chinese yuan and the weakening of the dollar component in the basket of world currencies as a landmark point of such a strategy. Such a transition is called a real challenge not only by domestic experts, but also by many analysts in the United States itself. This discussion is still ongoing. The second point that today is trying to predict is whether China's strategic line in relation to the Arab part of the Middle East is the beginning of China's turn away from Iran.
Let us try to take the risk of correcting the thesis about the extreme importance of the currency transition, if not refuting, then at least slightly correcting it and at the same time look at these negotiations both broader and deeper. From a political point of view, such an agreement (whether it is reached in the foreseeable future) undoubtedly carries a number of reputational costs for the United States. However, reputation in this case is still secondary.
In 1974, Washington and Riyadh reached an agreement that part of the proceeds from the sale of oil would be used to finance the US government debt. In exchange, Washington on all, as they say today, tracks supported the Arab kingdom and provided arms packages at an adequate cost and without limits. Thus, Saudi Arabia has gradually become not just one of the major creditors of the United States, but also firmly entered the dollar settlement system - it's just that its monetary system is based on the American currency. For Riyadh, the neighbors also pulled up.
Officially, no one forbids selling Riyadh to China for yuan, this is an “informal agreement”, but this informal agreement also has objective reasons. What, in fact, should Riyadh do with the Chinese yuan on its balance sheet today, and most importantly, tomorrow? How to take it into account in relation to the national currency? But the Yemeni war and the Syrian campaign were, to put it mildly, very costly activities for the Arabs that did not bring a single cent of profit. At the same time, a large-scale investment program is being implemented to form its own technological cluster, and the budget has been in deficit for years. The growth in the portfolio of the Chinese yuan here does not greatly contribute to investment activity and imports, and almost everything except oil is purchased by the kingdom from abroad.
Regarding China, the situation is more interesting and complex. The division of world trade into peculiar clusters is an objective process, and in such a division, all players who seek to form themselves as “poles” are interested in the growth of trade in the national currency. The growth of such trade strengthens the national currency, and such processes continue to spiral, supporting each other. Everyone is interested, but so far ... not the People's Republic of China, which over the past years has formed its own cluster, mainly in the shadow of the euro and the US dollar. Moreover, such a position in general suits the PRC.
This sounds somewhat strange at the present time of general division and the formation of new economic zones. At the same time, with a certain frequency, the world press begins to discuss this issue of expanding the yuan zone as actively as possible, moreover, precisely as an initiative from the Chinese side. Until November, the next piece of information about such negotiations was in March of the same year. This is the last time such a “hype” came from the filing of the Wall Street Journal. The topic constantly comes to the top, but let's take the facts, and they are such that the share of settlements in the yuan did not exceed and does not exceed 1,5% in world trade, with a slight decrease in the share of the US dollar (up to 45%) and some growth in the euro in previous years (to 36%).
If before the global crisis in 2008, the PRC maintained frankly high exchange rates of the dollar and the euro against the yuan (about 1/8 and 1/10, respectively), increasing its attractiveness as an “industrial factory”, then after the exchange rate was strengthened, but to a certain extent ( 1 / 6,5 and 1 / 7,5), and so it held until recently, when it was somewhat even weakened and just in relation to the dollar. i.e. story about the fact that now all oil suppliers will switch to settlements in yuan, and the dollar will be kicked out of the first place in international settlements, China will shake hands with the oil workers for this - somehow it doesn’t really fit with the real picture.
The fact is that the discussion about the inevitable division of the world into currency zones is only part of the problem, the tip of what is called the division of the world into economic zones. Each economic and political cluster and its conditional or unconditional leader enters this process with its own "cockroaches" - features. For Russia, the growth of the ruble zone is de facto a synonym for the economic zone, for the European Union too, but for China it is not quite a synonym.
The reason lies in the structure of the trade balance of each such state and economic entity, as well as in the balance of labor resources. By accumulating a trade surplus with a relatively weak base currency, China has gradually become the owner of a gigantic monetary surplus. Until 2015–2016 about half of this accumulated surplus was "stored" in US debt, but a program was launched to develop domestic demand and the Silk Roads.
50% was reduced to 30%, but the peak of opportunity was essentially passed. Further - either to increase consumption and the cost of labor. We invested in infrastructure for the future, set up “oases in the desert”, but how to maintain if they don’t buy further? It turned out that part of what was built was simply written off, naturally broken. Such a kind of "accelerated depreciation". Some economists have sometimes referred to such processes in an affectionate medical way: "sanitization." But in order to increase domestic demand, the law "on the only child" was canceled. Prior to this, at low wage rates, this law reduced nominal poverty rates. And now in special stores you can buy gold worth the weight of the population - you can also increase gold reserves and, again, withdraw excess cash from the people.
With such a need to maintain a balance between exports, wages and the domestic consumption cap, China is likely to continue on its conservative course. And here we need to look at another factor - the slow but inevitable reunification with Taiwan. Before reuniting with Taiwan's tech factory, it makes no sense for China to sharply develop the yuan. And then? And then it will be possible to transfer entire technological sectors in the world to the yuan.
The US is afraid of falling demand for the dollar
Then why does the American press launch a natural tsunami over and over again, discussing the fact that China and the Arabs are about to switch to settlements in national currencies? Debts. Unlike China, the United States is really (and quite reasonably) afraid of a fall in demand for the dollar, which, even if only expected or discussed, will immediately affect inflation - the United States needs to somehow service the debt and at the same time think about how to withdraw from the population previously printed in excess paper and send it to foreign markets. In the meantime, they have not found anything better than to raise the discount rate, promising its growth further.
Not only Moscow, for obvious reasons, has reduced investments in US debt. Both China and Saudi Arabia are reducing these assets in the portfolio. Moreover, the kingdom acts here in an interesting way - by reducing the volume of investments in debt, the Arabs seem to be investing in “technological” projects just for these amounts: Uber, Blizzard, TTIS, SNK, etc. Riyadh has created a separate investment fund for such investments. fund, where foreign exchange earnings and previously accumulated reserves flow.
And, of course, Saudi Arabia is not investing in video games, boats and shooters, but in their basis - artificial intelligence. The jurisdictions where these “intellectuals” are based are themselves investors in US debt (such a “giant” as Ireland), but these are already indirect processes, not direct transactions. In a situation of inflation in the United States and an unprecedented increase in the discount rate, reductions in public debt are simply extremely unprofitable for Washington, and the American media react to every potential deterioration in its position in this direction like a hungry wolf, from which a piece of meat is taken away.
From the foregoing, it becomes clear that, even having reached some kind of agreement in principle on settlements in national currencies, neither China nor Saudi Arabia will transfer all energy trade to this base, and if it is implemented, it is very limited in scale and with an eye to purely political factor. Actually, we see that the investment agreements signed by the parties in Riyadh are denominated in the same toxic American currency.
But the volume of these agreements is still not so large compared to the mega-program for modernizing the economy of Saudi Arabia (“Vision 2030”), which is being implemented by Crown Prince M. bin Salman - $ 30 billion. And, realizing that the very investment agreements that were signed at the summit were prepared much in advance, and not at the forum itself, and that their scale is relatively “medium”, it is necessary to raise the main and real economic background of such a large joint event - the continuation investment in Saudi Aramco.
В article Riyadh's Fair Economy Theory looked at the complex twists and turns of this project, when Arabia's main company was being dragged from a capitalization of several hundred billion dollars to the current $1,3 trillion, and why the Americans were not enthusiastic about these placements. And, it must be said that when M. bin-Salman was stubbornly looking for funds, including through the “compulsion of patriotism” of his numerous relatives, China constantly came to the rescue, buying out part of the assets. Not for the sake of charity, of course, but simply because of the synergy of tasks, because Beijing covers 1/4 of its needs in black gold from there.
Now we are talking about raising a new bar in terms of capitalization - over 2 trillion dollars, and this bar is quite real. Recall that the tests before the first placement generally gave a rate of 2,3 trillion dollars, which was then de facto artificially reduced by “well-wishers”. But, in addition to the cost bar, there is also a policy of individual discounts, which China seeks to see as long-term.
Now let's take a closer look at this strategic "construction". China directs the surplus of the dollar supply into the growth of the value of the production assets of the oilmen of the Gulf, and forms the price and volumes in the long term on the principle of the maximum discount. At the same time, it also invests in the technology sector of Riyadh. The United States, in this case, finds itself in a rather delicate situation, given the peculiarity of their debt and emission policy, because, with this approach, investments in their main asset will decrease. They should have done something like this themselves, but they missed the time.
Who will get hurt?
And who in such a situation is "technically affected"? In this case, Iran suffers, which has such assets on the stock market, sanctions have not been lifted from it, and the main task is trading at prices close to the maximum face value. Iran just technically cannot use the described problems of the dollar system. And, of course, when Beijing, solving a strategic problem, made significant political concessions to the Arab world, when it subscribed to the collective so-called. "Riyadh Declaration", which calls for a peaceful and diplomatic settlement of the issue of the disputed islands with the UAE. Iran was outraged.
Abu Musa Islands, b. Tomb and small. Tomb are important points in the transit of black gold. Iran considers these islands historically, factually and legally its own, has mastered them, and perceives any other statements on this matter very sharply. But the strategic background of the issue lies deeper, and the head of the State Council of the People's Republic of China, Huang Chunhua, had to fly to the President of Iran and assure him that the most important thing is to "achieve constant progress" in relations, and "the desire to develop a comprehensive strategic partnership with Iran is unshakable."
In general, we had to reassure and make it clear that Tehran would not be left without investments and inflow of foreign currency in this difficult time.
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