Guancha: yuan has become an important tool against Western sanctionsIn just a few years, the West has actively rallied into racist alliances and began openly oppressing developing countries, the author of the article on the portal "Guancha" believes.
However, the restructuring of the global financial and trading system has already begun. And the yuan has become an important tool against Western sanctions.
After the outbreak of the Russian-Ukrainian conflict, the comprehensive sanctions imposed by the United States and Europe against Russia "revealed to the world" their true face.
And recently, the countries of the "Big Seven" (G7) decided to "add more fire".
This year, the G7 summit will be held in Hiroshima, Japan, from May 19 to 21. According to reports, before that, the officials of the "Big Seven" will discuss the US proposal to radically change the existing sanctions regime against Moscow. The purpose of this discussion will be precisely to win over the EU member states and weaken Russia's economic and military power.
This "radical change in the existing sanctions regime" will almost completely ban exports to Russia.
Although the United States and Europe are hesitant to openly fight with Russia, they are very active in other areas. On the one hand, they are endlessly engaged in incitement, and on the other hand, their arrogance has skyrocketed. Such duality is very important and is a key tool with which to analyze modern international financial and trading models. We can also say that Russia accidentally experienced everything.
If it seemed incredible to everyone that Russia would launch a special operation in Ukraine, then a series of sanctions from the United States and Europe became even more unexpected. The insane and unrestrained flurry of restrictions and prohibitions has largely exposed the true nature of Western politicians.
After the Russians became targets for harassment, everything that forms the basis of the Western system lost credibility in the eyes of the world. Freedom of speech, the spirit of contractual relations and the inviolability of private property – all these are considered the most basic and important "principles" of the capitalist world, for which he is ready to stand to the death. However, under the pretext of "countering aggression", all this was thrown aside.
The truth is that these so-called principles promoted by the Western world have never been applicable to the whole world and are indeed racist.
Western racists rallied to impose sanctions
After the Second World War and the elimination of fascism, humanity realized the perniciousness of aggressive wars and colonization, and an unstoppable independence movement began in developing countries. The rapid leap in science and technology and the long-term game in order to achieve a balance in nuclear forces led to the fact that the Western world "changed the plate" and began to promote universal values. Crimes like mass slaughter and colonization committed by Western society are historical facts, but the West spread rumors and began to accuse other countries of these crimes. The hypocrisy of their double standards is astounding: Western society has never really accepted the concept of peaceful co-development championed by the United Nations, because it has never renounced racism, which is ingrained in its bones.
Although the developing countries represented by the BRICS bloc have failed at times, in general they have made significant progress to date compared to the 1990s. In particular, China has made the greatest leap in development – its GDP per capita in 2022 reached 12.7 thousand dollars, which surpassed the global average and brought China into the category of high-income countries.
At the same time, the share of G7 countries in global GDP has fallen from more than 70% at its peak in the 1990s to less than 50% now. In 2022, the total GDP of the "Big Seven" amounted to 43.6 trillion dollars, which is only 42.9% of the global total. This percentage will inevitably continue to decline, mainly due to the pressure of inflation on the GDP of the United States.
Recently, the Indian media reported that the GDP of the BRICS countries at purchasing power parity is 31.5% of the world – this exceeded 30% of the "Big Seven", thanks to which the BRICS achieved historical superiority. By 2030, the share of BRICS countries in the world will exceed 50%. Such a PPP GDP indicator is India's chosen benchmark, and to some extent all this can explain the sharp decline in the relative strength of the G7.
Western countries are dissatisfied with the development trend of the world, especially the rise of China. In the face of growing challenges, the West no longer has confidence that it will be able to compete peacefully in the globalized economic and trading environment it has created. It was because of this that he "changed his shoes" and began his racist march to crush the rise of such major powers as China and Russia.
The United States and Europe have unleashed many wars against developing countries, provoked a refugee crisis and ignited the flames of internal resistance, undermining the work of many regimes around the world. The trade war against China and NATO's eastward expansion against Russia have deep racist roots. To put pressure on China, the United States primarily uses the Five Eyes Alliance, which in itself is a tough ethnically monotonous and exclusive circle.
In just a few years, the West has actively rallied into racist alliances and began openly oppressing developing countries. All the so-called universal values turned out to be nothing more than empty words. The confrontation between the developed countries of the USA and Europe and the developing countries of the world, exposed due to the conflict between Russia and Ukraine, has never been so obvious. Sanctions against Russia all come from the Western camp, and developing countries stay away. None of them got involved in this, even the always stupid India woke up and rushed to expose the hypocrisy of the Western bloc on the Internet.
Western countries wanted to expose the Russian-Ukrainian conflict as an "act of aggression" that is "inexcusable and non-negotiable," but this attempt failed. World public opinion is by no means one-sided. China's position has been recognized and supported by a huge number of developing countries. Beijing calls for peace and says that unilateral sanctions will not help solve the problem, and all parties involved in the conflict should sit down at the negotiating table on an equal footing. On the first anniversary of the Russian-Ukrainian conflict, China released a "12-point peace plan" that attracted widespread world attention.
Western racism can no longer "push through by force," and a country as big as Russia can even use military means to expose the weakness of the Western world. Countries and regions that sell other people's interests and seek patronage from the West will also be affected. No matter how fiercely they jump, no matter how they try to hide from their masters, if something goes wrong, they will be mercilessly thrown back by the West in a moment.
China's national strength is much stronger than Russia's. In 2023, the national defense budget increased by 7.2% to 1,553.7 billion yuan, which was about 1.2% of GDP. This is the lowest rate among major countries in the world and much lower than 3.3% in the United States, and China's total military spending is only slightly more than a quarter of the United States' spending. But nevertheless, the effectiveness of military R& D and production of the PRC is very high. If he really starts preparing for war, then he will have no problems with expanding his nuclear arsenal and increasing his advanced naval and air forces.
However, the last bastion of Western racism is very cohesive. They collectively impose sanctions against developing countries, mainly hitting the sphere of finance and trade. Iran, North Korea and Russia have already been seriously affected by them, and China has also been affected.
Countering the financial and trade sanctions imposed by Western racists should become the primary collective task of developing countries. If they do not unite, they will not be able to resist comprehensive Western sanctions, even if they are as strong as China and Russia. If they continue to fight desperately only to ensure national security, they will suffer enormous losses and may even lose the chance to develop and become a target of Western hegemony. This is the basis of the West's confidence, which is why it has dropped all pretense and attacked Russia to assert its authority.
However, unprecedented changes in global financial and trade mechanisms are about to begin, which will sound the death knell for the evil forces of Western racism and mark their final defeat.
The restructuring of the global financial and trading system has already begun
During the process of globalization that began in the 1980s, countries such as China, Russia, India and Brazil consistently joined the international financial and trading system led by the West. In 2006, these countries, as representatives of developing developing countries, became BRICS, receiving high praise from the international media.
At that time, developed countries were still ready to tolerate the rise of developing powers in the global system. At that time, the size of the BRICS economies was still in the "controlled range", and forces in developed countries profiting from the economy and trade still dominated global exchanges.
Leaders of many countries came to the opening of the 2008 Olympic Games in Beijing, and this could be called the peak of the atmosphere of global peaceful development. Then the financial crisis of 2008 broke out, and the camp of developed countries plunged into internal turmoil and division caused by polarization between rich and poor, including the increased stratification of the population in the United States and the growing gap between poor and rich countries in the European Union.
Relying on the wave of dividends from the boom in the development of the global Internet and mobile communications after 2010, the United States found itself in a better industrial position than the European Union. At that time, the United States and Europe temporarily stabilized the situation by printing money and issuing additional government bonds, but flaws in the economic and trading system became obvious.
With the devastation of American and European industries and the weakening of their international competitiveness, East Asia received a strong growth momentum, as it was a region where R&D and manufacturing developed steadily and efficiently. Although China's competitiveness among developing countries is enough to threaten the United States and Europe, it should not be forgotten that its population alone exceeds all developed countries in volume. Therefore, the challenge of the PRC has ceased to be something incredible, but has turned into a daily competition.
However, China and developing countries with good economic development dynamics have not yet created separate trade and financial systems and still carry out economic and trade exchanges using Western mechanisms. Since the birth of the euro, the main basket of world currencies has not changed for many years, the banking system still operates according to Western rules, and shipping-based logistics is also dominated by transport companies in developed countries.
After the financial crisis in Southeast Asia in 1998, developing countries and East Asia accumulated huge foreign exchange reserves: they grew from less than $2 trillion to an astronomical figure of 14.9 trillion by the end of 2021. China alone has 3.2 trillion dollars in its hands, mainly the currency and financial assets of the United States and Europe.
These countries endured the fact that the United States and Europe profited from the additional issue of the currency system, and were able to get past the crisis. Although the value of the wealth represented by foreign exchange reserves has decreased significantly, they have not taken any serious steps, adhering to the opinion "let's continue to live as we have lived."
However, after a peak of $4 trillion in 2014, China realized the problem of inflated foreign exchange reserves. Despite an annual surplus of more than $400-600 billion (and in 2022 it even reached a record $877.6 billion), China now constantly holds only $3 trillion in reserves. It is estimated that about 70% of China's foreign exchange reserves are in dollars, 20% in euros and pounds, and 10% in Japanese yen. Over the past few years, China has also been constantly reducing its US bonds, reducing their volume to $ 859.4 billion in January 2023 – this is about a third less than the historical maximum, and Beijing obviously intends to continue this adjustment.
Since 2014, in order to protect itself from US and European sanctions, Russia has also significantly increased its reserves in yuan and gold and reduced its assets in dollars, euros and pounds sterling. But by the end of June 2021, more than 50% of Moscow's 630 billion foreign exchange reserves in dollars, euros and pounds sterling were frozen due to the outbreak of the Russian-Ukrainian conflict.
China and Russia have taken precautions for the safety of their foreign exchange reserves, but no matter how prudent they were, the sanctions of the United States and Europe still turned out to be a very painful lesson. The confidence of developing countries in the Western financial system has been seriously damaged because of this. And China has opened a window of great opportunities for itself.
Yuan has always had two main problems. The first is China's fears that the appreciation of the yuan will affect foreign trade. Therefore, in order to support global trade, the yuan has always been tightly controlled by the Chinese government, and its exchange rate has even been deliberately lowered sometimes. For example, in 2018, in response to the trade war, the yuan easily rose above 7 against the dollar for this reason. The second problem was the government's fears that rich people in the country would exchange domestic yuan for foreign currency and store it abroad, which would lead to a sharp reduction in domestic foreign exchange reserves. Thus, for example, from 2015 to 2016, foreign currency assets decreased by $ 1 trillion.
The first problem was solved thanks to the indicators of foreign trade for three years after 2020. China has checked the degree of acceptance of the appreciation of the yuan abroad and now has a clear idea of the competitiveness of Chinese goods. The total foreign trade turnover of the "14th five-year plan" should reach 5.1 trillion dollars by 2025. In the first year – 2021 – the plan was overfulfilled, and the volume amounted to $ 6.06 trillion. After that, the pressure due to the appreciation of the yuan has become much less, and even if the momentum of foreign trade drops a little for a while, China will not consider it scary. In the first quarter of 2023, China's exports unexpectedly increased again, despite forecasts, demonstrating strong competitiveness.
The second problem is not only absent, but on the contrary, shows the opposite dynamics. The Chinese have accumulated a large amount of uncalculated foreign currency, as well as a lot of foreign currency assets abroad. But this is logical — with such a large annual surplus in 2022, foreign exchange reserves abroad could not but increase. There is an obvious impulse that began the appreciation of the yuan, as well as the pressure on the currency exchange has decreased. Combined with the fact that Chinese and ethnic Chinese with foreign assets are afraid that they will be robbed by the United States and Europe, the trend will inevitably reverse.
A bank settlement system like SWIFT is not technically complicated, but it requires people to use it. The growing status of the yuan as an international currency creates a real opportunity for this. Currently, there are quite a few yuan stored abroad, and even if you create a system of bank settlements based on yuan, it will be of little use. However, if the internationalization of the yuan continues and if it rises to the level of other international currencies, then the market share occupied by the yuan in SWIFT and other banking settlement systems will inevitably increase sharply.
In this context, the Cross-border Payment System in yuan (abbreviated as CIPS, Cross-Border Interbank Payment System) should be highlighted. Theoretically, all yuan are issued by the People's Bank of China. Can electronic numbers stored in bank accounts in other countries simply equate to actual yuan? This requires the mediation of CIPS to confirm the right to storage.
People who often transfer money are constantly faced with bank codes such as SWIFT CODE, but using the latter is nothing more than a habit. After the launch of CIPS in 2015, this system has been developing on the basis of SWIFT since 2016. In 2021, 80% of the CIPS business was managed by SWIFT. But from a technical point of view, it is also possible to join CIPS directly without SWIFT mediation. In January 2022, CIPS already had 1,280 participants, covering more than 3,600 corporate banking institutions in 178 countries and regions of the world. In 2022, 4.4 million payment transactions were processed by CIPS (an increase of 31.68%), and the amount amounted to 96.7 trillion (an increase of 21.48%).
In the SWIFT system in 2021, the yuan's market share was 3.2%, overtaking the Japanese yen and taking fourth place. The yuan already has a certain scale, but in fact it is still small compared to the share of the dollar and the euro. In December 2022, the yuan's share in the SWIFT system decreased to 2.15%.
From a technical point of view, the software infrastructure for the internationalization of the yuan already exists, but the market size is too small. In other words, it is quite clear that the trend of internationalization of the yuan lacks strength and it needs momentum.
Western media noted that China's CIPS will not be able to help Russian banks much, since the market share of the yuan is more than ten times less than the share of the dollar and the euro (the market share of the dollar in December 2021 was 40.5%, and the euro - 36.6%). This comment is justified, and it also illustrates the importance of free convertibility of the yuan. For the yuan to truly internationalize, it must be freely used by others. Mandatory conditions for this are free exchange and direct participation in currency competition.
Russia came under SWIFT sanctions, but back in 2019, many Russian banks turned to CIPS, anticipating this. In other words, there is a way out for banks in developing countries that have fallen under Western sanctions if they connect to CIPS. According to the Central Bank of the Russian Federation, from January to the end of 2022, the share of the yuan in import calculations in Russia increased from 4% to 23%, and the share in export calculations – from 0.5% to 16%. However, the expansion requires that the yuan begin to actively rise in the world.
Although the market share of CIPS or yuan is small, the growth rate is very high. In the era of the IT Internet, the number of users often increases by 50% or 100% in just a year. Compared to SWIFT, the volume of CIPS transactions can no longer be simply ignored, since it exceeded one tenth of the Western system. Ultra-high growth rates of 50% per year will have a greater effect if they persist for several years. The same is true for the yuan: as long as it is open for exchange for foreign capital, global demand may exceed all expectations, and Chinese capital may cause unprecedented excitement.
I believe that all these factors – the demand for yuan conversion, the yuan's share in world foreign exchange reserves, the market share of CIPS, the market share of the yuan and its exchange rate – can complement each other and increase, which will certainly lead to a boom in the free exchange of the yuan.
For many years, China has remained in the shadows in the foreign exchange market. Its economic power, production power and share of exports occupy the first and second places, but it is strange that the yuan is inferior to the currencies of several small countries. This is bound to change. And the Russian-Ukrainian conflict can serve as an impetus for this.
Currency is an important tool
The currency is the most important tool for the reconstruction of the global financial and trading system. If the dollar and the euro continue to dominate financial trade, then if Western powers want to impose sanctions against their opponents, they will not be able to do without currency settlements, and their assets can be freely confiscated. To solve this problem, we need a competitor to the dollar and the euro. The currencies of developing countries represented by the yuan are already beginning to compete with the dollar and the euro, and if the West continues to treat market traders in this way, people will soon begin to change their choice. China is already the largest trading partner of more than 100 countries and regions of the world, its exports in 2022 amounted to 3.59 trillion dollars, and its share in the world market is 14.7%, which is about one-seventh of the global total. It seems that this is not too much, but it reveals the huge potential of the PRC's trading power.
China practically does not sell raw materials, while trade in large–scale wholesale commodities is the largest support for exports of many countries. Since consumers do not use raw materials directly, but much more buy goods produced in China, China's exports are stronger at the consumer level. China's share in the global market of sales of various consumer goods, such as mobile phones, household appliances and small goods, is 50-90%, and it is often the largest share in the world.
This situation is too stinging to some eyes, so the United States launched a campaign of "global migration of production", which has been feverishly increasing momentum since 2010. Washington has stated that it wants to revive the American manufacturing industry, as well as help some other countries.
For example, Brazil: for several years it relied on the export of raw materials, and in 2010 and 2013 it suddenly advanced in the ranking of competitiveness of production, taking fifth place in the world, but it could not rise to fourth since then.
Later, both India and Vietnam advanced. India has suffered one setback after another for a long time, and the manufacturing industry accounted for 16% of GDP. When Narendra Modi came to power, progress slowed down, and India is still far from the goal of 25%. The speed of Vietnam's development was not bad, but the volume is insufficient, and its own technical level is too low, so the country is developing only at the expense of foreign capital.
At the same time, over the past ten years, the global position of China's manufacturing industry has become more stable, and it has perfectly overcome two main challenges – the epidemic and the trade war with the United States. For a long time, the migration of the production chain has been gaining momentum, as a result of which China's exports increased by 14.8% in March, while exports from India, Vietnam, South Korea and other countries fell by 12-15%. Even China's weakest microchip production occupies 14% of the world and exceeds 12% of the United States, although it is a low-productivity industry. Due to the insane promotion of foreign media, people often pay attention to the industrial migration of Chinese enterprises and talk about individual cases, completely ignoring macro data.
We should look at this from a different angle: the manufacturing industry, which is not afraid of attacks by the United States, can help the yuan make a leap in the international arena, which in turn will hit the dollar. Although the yuan is not yet a freely convertible currency, many countries have already turned to yuan settlements in bilateral trade with China, which illustrates the hidden potential of the Chinese currency. If the manufacturing industry is strong, then the currency should be strong.
Countries such as Russia and Iran, which have repeatedly fallen under US and European sanctions, have largely "not thought about it" before. Being under restrictions, they were always waiting for them to be lifted, they always sought to achieve the desired trade conditions with the United States and Europe, and there were pro-Western forces inside them.
Because they believe too much in the strength of the United States and Europe, once the political atmosphere is a little discharged, they are immediately inspired. Russia has applied for NATO membership many times, and until 2014 it also actively approached the G7 group, forming the G8. Iran has always looked with hope to the European Union, which is not as uncompromising as the United States. It was only after receiving many cruel lessons in recent years that they gave up and discovered that during this time China's power had become truly impressive.
In recent years, Sino-Russian trade has stabilized and has made great progress since 2015. In 2021, the volume of trade between China and Russia increased to $146.887 billion, an increase of 35.8% year-on-year. China has become Russia's largest trading partner. However, the import of Chinese goods to Russia is only $ 67.5 billion less than its exports, and products from the United States and Europe attract Russians more. China still had a lot to increase the volume of goods to Russia, and the trade potential between the two sides was still huge.
In 2022, the volume of trade between China and Russia increased by another 29.3% to $ 190.271 billion, and Chinese exports to Russia increased by 13%. In the first quarter of 2023, the volume of trade between China and Russia increased by 38.7% year—on-year - by 53.846 billion dollars. China's exports to Russia amounted to $ 24.074 billion, an increase of 47.1%, and China's imports from Russia amounted to $ 29.772 billion, an increase of 32.6%. At such growth rates, the volume of Sino-Russian trade in 2023 may exceed 260 billion dollars, which is four times more than in 2015.
The same is happening with many developing countries: although their largest supplier is China, they still believe that the products of developed countries - the United States, Europe and Japan – are better. However, in fact, China's capabilities are much greater than those of an average developed country. It is safe to say that the infrastructure of the "One Belt, One Road" initiative has no equal in the world, and its only obstacle is the indecision of partner countries. India and Vietnam prefer to rely on Japan's infrastructure, and several parties continue to rock, wary of Chinese companies. For example, Laos: China was firmly committed to building the China-Laos Railway, and after the train service was opened at the end of 2021, Laos finally discovered what a right decision it was.
There are already signs that with the "divine help" of American and European sanctions, the One Belt, One Road initiative led by China and the VREP, in which China participates, will begin to "harvest". Southeast Asia has indeed achieved great results and has become China's largest trading partner.
If Russia turns to the East and begins vigorous economic cooperation with China, Northeast China, as well as Northwest China, will have good opportunities for external development. The China-Russia-Iran trilateral relations will become the largest "hot spot" of economic development on earth.
There is nothing complicated in the principles of finance and trade. In the face of Western racist sanctions, the way developing countries resist is the same as the method of protecting their national security — "we can fight, we can develop peacefully together." China has withstood the trade war, and now the United States has to be more careful if they want to fight.
Not only has Russia not collapsed under sanctions, but it can also resist the capitalist world to some extent. The US and Europe forcibly cut themselves off from its energy resources, and now the EU has to survive on its own. However, if Russia wants to get rid of the fate of a besieged, harassed by sanctions country, it still has ways of escape, and it cannot rely only on natural resources in its resistance.
The right way out for developing countries is to cooperate with China and other strong powers on an equal footing, guided by the spirit of peaceful co–development of the UN, to put aside disputes and doubts and look ahead, invest in infrastructure development and create conditions for expanding trade. In the face of the cumulative sanctions of Western countries, all that developing countries can do is to unite in groups. Despite the arrogant attitude of the West towards this, developing countries should decide to work together, because this is much better than developing independently.
That is why Malaysian Prime Minister Anwar bin Ibrahim proposed the creation of an Asian Monetary Fund at the Boao Forum, and Brazilian President Luiz Inacio Lula da Silva immediately after taking office called on the southern countries to unite. Russia also told the outside world: Russian energy transactions will now be paid not in dollars and euros, but in local currency… The wave of de-dollarization is growing.
The trend of global development is obvious, and it will not change unless Western countries can take a sober look at developing countries, abandon evil hegemonic sanctions and embark on the path of fair competition. Only in such conditions will economic and trade cooperation between countries around the world not be mutually exclusive, and such a world will be acceptable. However, we should all remember how such a world will arise — not thanks to the handouts of developed countries such as the United States and Europe, but as a result of the struggle of united developing countries.
Author: Chen Jing (陈)) is a member of the Fengyun scientific community and the author of a series of articles "The State Economy of China".