Charts: U.S. Fed’s Balance Sheet Has Steadily Deteriorated, and with It the Real Value of the Dollar

Source : Bloomberg

Chart: China’s Barometer for Labour-intensive Goods Exports Hits Nine-year High

The overseas appetite for labor-intensive goods in China surged in the third full week of March by one industry measure, offering some positive news to the export industry after the country’s shipments abroad fell in the first two months of the year.

The Yiwu small commodity export price index, which tracks goods prices charged by exporters in the eastern Chinese city, surged to 107.22 last week, its highest reading since 2014. Yiwu is home to one of the world’s largest wholesale markets for Christmas decorations, neckties, showerheads and a multitude of other products known domestically as “small commodities.”

Source : Caixin

Chart: China and Russia Agreed to Expand Cooperation in the Energy Sector

Moscow is ready to scale up natural gas exports and provide “uninterrupted” oil supplies to China, according to statements from the Chinese Foreign Ministry and the Kremlin.

During President Xi Jinping’s visit to Russia this week, he discussed with his counterpart Vladimir Putin “in detail” the implementation of pipeline project Power of Siberia-2, which could deliver up to 50 billion cubic meters of Russian gas to China each year.

Source : Caixin

Humour

America’s Interest in Ending the Ukraine Crisis

Brahma Chellaney wrote . . . . . . . . .

The recent face-to-face meeting in New Delhi between US Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov – the first such high-level interaction since the start of Russia’s full-scale invasion of Ukraine – suggests that diplomacy may no longer be a dirty word.

The ten-minute meeting on the sidelines of the G20 gathering occurred after US National Security Adviser Jake Sullivan reportedly urged Ukraine to show Russia that it is open to negotiating an end to the war. Together, these recent developments offer a glimmer of hope that a ceasefire is within the realm of the possible.

The war in Ukraine, which has shaken the foundations of the international order, is in many ways a proxy war between the world’s two major powers, with Russia backed by China and Ukraine backed by the United States. Over the past year, the war has triggered global energy and food crises, spurred higher inflation amid slowing global growth, and heightened the risks – underscored by Russia’s recent downing of a US drone over the Black Sea – of a direct Russia-NATO conflict.

And yet, after more than a year of fighting, it is clear that the conflict has settled into a war of attrition, with both sides struggling to make significant advances on the battlefield. A ceasefire is the only way out of this military deadlock, but reaching an agreement could take a long time. The 1950-53 Korean War, for example, was deadlocked for two years before an armistice agreement was reached.

Russian President Vladimir Putin clearly believes that a prolonged war of attrition works in his favor, enabling his army to wreak havoc on Ukraine and testing Western resolve. To overwhelm Ukrainian air defenses, Russia is launching more missiles simultaneously, including its Kinzhal hypersonic weapons, which are all but impossible to shoot down. Despite the flood of Western weapons systems it has received, Ukraine is in no position to thwart Russia’s intensifying aerial assaults.

But it is also becoming increasingly clear that Russia cannot achieve its strategic objective in Ukraine. It may have occupied nearly one-fifth of the country’s territory but it has created a more hostile neighbor and reinvigorated NATO, which is now poised to admit Finland and most likely Sweden. Moreover, many of the unprecedented sanctions the West has imposed on Russia will likely endure beyond the war and inflict long-lasting damage on the Russian economy.

At the same time, US President Joe Biden’s “hybrid war” strategy, which seeks to cripple Russia through soft-power techniques and the weaponization of global finance, has failed to bring about Putin’s downfall or turn the ruble into “rubble,” as Biden vowed in the early stages of the war. The US-led sanctions regime has severely limited Russia’s ability to resupply its forces but has fallen short of halting the Kremlin’s war machine. While the sanctions have dented its earnings from energy exports, Russia has found willing buyers for its oil and natural gas in non-Western markets (albeit at a discount).

Short of a collapse in morale causing Russian soldiers to surrender en masse – which is a possibility, given the history of the Russian army – it is unlikely that Ukraine will be able to force Russia to withdraw fully from the territories it has occupied in the country’s east and south. While the US has committed to upholding Ukraine’s territorial integrity, restoring Ukrainian control over these regions seems like a distant goal at best.

Meanwhile, China is the only country that stands to benefit from a protracted conflict. As a recent report by the Washington, DC-based Free Russia Foundation says, China is already the “biggest winner” from the Western sanctions on Russia. China has become Russia’s banker and most important trade partner, using the war to implement an energy safety net by securing greater Russian oil and gas supplies that could not be disrupted even if China decided to invade Taiwan.

The more the US is dragged into the war in Ukraine, the greater the likelihood that China invades Taiwan and America realizes its worst geopolitical nightmare: a Sino-Russian strategic axis. The US may remain the world’s foremost military power for now, but taking on the combined force of China and Russia would be a herculean task.

The war has already exposed the West’s military shortcomings, such as depletion of supplies of critical munitions, America’s struggle to scale up weapons manufacturing, and the weakening of the US-European consensus on Ukraine. All this could tempt Chinese President Xi Jinping to seek to deplete Western arsenals further before invading Taiwan, by indirectly shipping arms to Russia and forcing the US and other governments to increase weapons supplies to Ukraine. Xi is already aiding Putin’s war to a limited extent by supplying Russia and sanctioned Russian entities with drones, navigation equipment, jamming technology, fighter-jet parts, and semiconductors.

While some in the West believe that a negotiated ceasefire in Ukraine would embolden China to attack Taiwan, Xi does not need Russia to show him that aggression works. China’s own cost-free expansionism, from the South China Sea to the Himalayas, is all the proof he needs.

As a recent RAND report points out, a protracted Ukraine war is not in America’s interest. A prolonged conflict would lead to increased flows of US money and weapons into Ukraine, elevating the risk of a NATO-Russia conflict and hindering the ability of the US to respond to the China challenge. As Biden has already acknowledged, a “negotiated settlement” is the only way to end the war – better to seek it now than after months or years of bloodshed and devastation.

Source : The Business Standard

China-Russia Trade Surge Lifts Yuan Use, but Russians Would ‘Give Right Arm’ for US Dollars

Amanda Lee and He Huifeng wrote . . . . . . . . .

Xi and Putin deepen China-Russia partnership in Moscow talks, but no Ukraine peace deal details
Trade between China and Russia has grown significantly, catapulting the yuan to become a regional reserve currency for Moscow, but analysts said it will not help significantly internationlise its use as the move is “a sign of its desperation” with “no use” in everyday life in the largest country in the world.

Russia’s economy has been hit by Western sanctions as a result of its invasion of Ukraine, resulting in a broader use of the yuan after the Washington-led curbs restricted access to the US dollar.

President Xi Jinping and his Russian counterpart, Vladimir Putin, signed a joint statement promising deeper financial cooperation this week, but the use of the yuan is seen to be limited to one-way trade despite an increase in commercial activities.

“Recently, our Russian customers have begun paying us in yuan, before it was often the US dollar,” said Will Liu, a marketing manager for a Guangdong-based medical device exporter.

Receiving payment in the yuan is a huge advantage for smaller exporters like Liu, who focuses on the Commonwealth of Independent States – that includes the likes of Russia, Uzbekistan, Kazakhstan and Azerbaijan – and South American markets, as they are often exposed to foreign exchange risks that can increase costs.

Steve Xie, a Zhejiang-based fabric exporter, said that there were some payment difficulties last year from his Russian customers, but it has since returned to normal.

“Right now, it’s a lot quicker and convenient, because it’s now paid in yuan. What’s more, there’s more demand from our customers. Other than fabrics, they want to order fruits, vegetables, and canned meat,” Xie said.

“We thought, why not? We helped them to get the goods and transported them to Erenhot port,” added Xie, referring to the land port on the China-Mongolia border.

Mark Sobel, US chairman of the Official Monetary and Financial Institutions Forum, said Russia’s use of the yuan is “a sign of its desperation”.

“Russia’s increased use of the yuan will likely have extremely little impact on global monetary trends. China is a large global trader, highly integrated with the global economy; it’s too smart to let its relationship with Russia spoil that,” said Sobel, who worked for the US Department of the Treasury for nearly four decades.

“Even if the yuan’s role in trade settlement in the region rises, the yuan’s global usage will continue to remain extremely limited given the lack of openness and convertibility as well as the presence of a plethora of capital controls, in addition to investor scepticism about Chinese protections for property rights.”

On Tuesday, Xi and Putin promised “smooth settlement” between economic entities, while the joint statement also included “supporting the expansion of the use of local currency in bilateral trade, investment, credit and other economic and trade activities”.

Russia is already getting significant use out of the yuan following a wave of US-led financial sanctions against Moscow, including having nearly half of its foreign currency reserves frozen and the removal of major Russian banks from interbank messaging service Swift, that facilitates international payments.

Rory Green, chief China economist at London-based research firm TS Lombard, estimated that offshore yuan use in Russia jumped from less than 0.26 per cent in 2020 to 2.57 per cent as of January, making Moscow the fifth biggest global foreign exchange trading hub after Hong Kong, Britain, Singapore and the United States.

Russia’s state-owned gas giant Gazprom said in September that it had signed agreements with China National Petroleum Corporation to settle payments for Russian gas supplies to China in roubles and yuan, a move that is seen to diversify from the US dollar.

Other Russian companies, such as its largest gold producer Polyus, also began to borrow in yuan in the bond market.

“It is certainly helping to internationalise the yuan. Greater Russian usage of the yuan widens the potential pool trading partners. So too does the US use of dollar sanctions increase demand for the yuan as a reserve currency,” Green added.

“However, it will not help liberalise the yuan or alter its convertibility – that is ultimately a political-economic decision to be made in Beijing.”

Green pointed out the bigger shift in terms of trade, with a much higher share of cross border transactions denominated in yuan and a greater use of yuan for trade financing
.
China’s total exports to Russia grew to US$76.12 billion in 2022 from US$67.57 billion a year earlier, while imports from Russia grew to US$114.15 billion in 2022 from US$79.32 billion in 2021, according to Chinese customs data.

“There’s no question the yuan has become a regional currency for Moscow,” said George Magnus, a research associate at Oxford University’s China Centre.

“For Russia, then, the yuan is growing in significance for practical purposes, though it’s highly likely Russian citizens and firms would still give their right arm to get access to US dollars, rather than yuan.”

Other than trade, there is little sign that the yuan has gained ground in Russia as it remains difficult to exchange into roubles, according to residents and visitors.

Rick Wang, a senior manager of a down jacket manufacturer in Zhejiang province, who visited Russia in February, was disappointed that he could no longer use yuan in supermarkets.

“I don’t know why. Four, five years ago I was able to do so,” he said.

A Chinese national who lives in Moscow, who did not want to be named due to the sensitivity of the issue, said there is “no use” of the yuan in everyday life.

“If you have some cash in yuan, yes, some banks can exchange it. But it’s very limited,” they said.

“Maybe in some trade settlement, it could happen. But the US dollar still dominates.”

While Russia has been growing the amount of yuan in its banking system in an attempt to substitute the US dollar, in addition to the lack of convertibility, it faces the constraint that trade with China is still quite limited compared with China’s trade with Asean nations, such as Vietnam and Malaysia, according to Magnus.

“Yet, for all the talk and reeling off of examples, the yuan’s international role is destined to remain quite small in global trade and settlement, and especially in global capital movements,” Magnus added.

“Even if it could double over time from, say, 3 to 6 per cent of Swift transactions, it would still be smaller than the British Pound.”

Source : SCMP

Infographic: 中国 《国务院工作规则》重大修订 新旧版本变化对比

Source : Baike

U.S. Sees China Propaganda Efforts Becoming More Like Russia’s

Nomaan Merchant and Matthew Lee wrote . . . . . . . . .

China has long been seen by the U.S. as a prolific source of anti-American propaganda but less aggressive in its influence operations than Russia, which has used cyberattacks and covert operations to disrupt U.S. elections and denigrate rivals.

But many in Washington now think China is increasingly adopting tactics associated with Russia — and there’s growing concern the U.S. isn’t doing enough to respond.

U.S. officials and outside experts cite recent examples of China-linked actors generating false news reports with artificial intelligence and posting large volumes of denigrating social media posts. While many of the discovered efforts are amateurish, experts think they signal an apparent willingness from Beijing to try more influence campaigns as part of a broader embrace of covert operations, according to two people familiar with the matter who spoke on condition of anonymity to discuss sensitive intelligence.

“To us, the attempt is what stands out,” one U.S. intelligence official said.

An increasingly pessimistic mood in Washington about Beijing’s expansive political and economic goals and the possibility of war over Taiwan is driving calls for the U.S. to make a stronger effort to counter Chinese influence abroad.

Lawmakers and officials are particularly concerned about countries that comprise the “Global South” in Africa, Asia and Latin America, where both the U.S. and China have huge economic and political interests. Many of those countries have populations that support both sides — what an official called “swing states” in the narrative battle.

“This should be a whole of government effort,” said Rep. Raja Krishnamoorthi of Illinois, who is the top Democrat on a newly formed House committee focusing on the Chinese Communist Party.

“The CCP is going around the world bad-mouthing the U.S., bad-mouthing our institutions, bad-mouthing our form of government,” Krishnamoorthi said in an interview. “We have to counter this because ultimately it’s not in the best interests of the United States.”

China’s embassy in Washington said in a statement that Beijing “opposes the fabrication and dissemination of false information” and blamed the U.S. in turn for making social media “into its tool to manipulate international public opinion and its weapon to stigmatize and demonize other countries.”

“On this issue, it is for the U.S. side to reflect on itself and stop shouting ‘catch a thief,’” said embassy spokesman Liu Pengyu.

Chinese state media and affiliated channels, as well as social media influencers with vast followings, routinely spread ideas the U.S. labels exaggerated, false or misleading. In recent weeks, China’s foreign ministry has called attention to the train derailment that released toxic chemicals in Ohio as well as allegations the U.S. may have sabotaged pipelines used to transport Russian gas.

The Biden administration has strongly rejected the allegations about the Nord Stream pipelines and defended its response in Ohio.

China has long been seen as less willing than Russia to take provocative steps that could be exposed and more concerned about being publicly blamed. U.S. intelligence judged that Russia tried to support Donald Trump in the last two presidential elections, while China in 2020 considered but did not try to influence the election.

But some U.S. officials believe China is now undertaking or considering operations it would not have in the past, according to the two people familiar with the matter. That’s partly due to fears in Beijing that they are losing a battle of narratives in many countries, one of the people said.

Officials noted public examples identified in recent weeks by groups that track disinformation and influence.

The research firm Graphika recently identified AI-generated videos that it linked to a pro-Chinese influence operation. One video attacked the U.S. approach to stopping gun violence; another “stressed the importance of China-U.S. cooperation for the recovery of the global economy,” according to Graphika. And threat analysts at Google said they disrupted more than 50,000 instances of posts and other activity last year linked to a pro-China influence operation known as “Dragonbridge.”

The AI-generated videos are clearly fictitious and Graphika said none of them had more than 300 views. Most Dragonbridge posts, Google said, also reached a tiny audience.

The U.S. intelligence official said Chinese tradecraft on social media was “uneven” and less sophisticated than what’s normally associated with the Kremlin. But that tradecraft — both in terms of social media operations and efforts to hide any linkage to Beijing — can be expected to improve over time and with practice, the official said.

And there are longstanding concerns in Washington about TikTok, the viral video-sharing app whose U.S. operations are currently undergoing a national security review. There’s no public evidence that Beijing has used its sweeping powers over businesses in China to direct content on the app or launch government-sanctioned influence operations, but there’s a belief that China could do so quickly enough not to be caught or stopped.

China is increasingly viewed unfavorably in the U.S., much of Europe, Australia, South Korea and Japan, according to Pew Research Center data published last year.

But in other countries in Asia as well as in much of Africa and Latin America, there are more positive attitudes about the Chinese government, often driven by Beijing’s economic investments and offers of infrastructure and security assistance.

Last year’s Africa Youth Survey, which was composed of 4,500 interviews of 18- to 24-year-olds in 15 countries, found that 76% of respondents believed China had a positive influence in their country. Of the U.S., 72% said they believed American influence was positive.

In the event of a war over U.S.-backed Taiwan, experts believe shaping global attitudes and narratives will be key in ensuring military and diplomatic support for either side.

Rep. Mike Gallagher, the Wisconsin Republican who chairs the new congressional committee on China, said in a statement after recently visiting Taiwan that Chinese influence operations are part of a broader strategy of “cognitive warfare.” He added that the committee would “work to expose the truth about the (Chinese Communist Party’s) pattern of aggression against America and our friends.”

The State Department’s Global Engagement Center is charged with countering Chinese messaging outside of both the U.S. and China. Speaking on condition of anonymity under ground rules set by the department, a State Department official responded to concerns that the U.S. doesn’t directly counter many lines of attack from Beijing.

“There was a decision made that we were not going to get in the business of playing whack-a-mole with specific lines of Chinese messaging,” the official said. “Frankly, there’s just too much of it. It would be like trying to put your finger in the dam to stop the leak.”

The State Department instead tries to fund programs exposing facts and ideas that China wants to suppress. The Global Engagement Center has funded third-party research of China’s crackdown in Xinjiang province against Uyghurs and other mostly Muslim ethnic groups. Beijing has long tried to frame its operations in Xinjiang as countering terrorism and radicalism in the face of international criticism about its network of detention camps and its restrictions on movement and religious expression in the province.

State has also funded trainings for investigative journalists in countries that have received Chinese investment and a project that tracked Chinese dam construction along the Mekong River, which is a key source of water for Southeast Asian countries downstream from China.

The U.S. also uses direct investment as a tool for countering Chinese influence, though critics have questioned whether some funded programs are effective.

In one instance, the U.S. Agency for International Development last year proposed using funding from an annual fund for countering Chinese influence to support bakeries in Tunisia. According to two other people familiar with the matter, officials wanted to buy software for bakery owners to help them determine which of their products were most marketable. The people spoke on condition of anonymity to discuss internal agency deliberations.

In a statement, USAID said the Tunisia program was intended to “create sustainable demand-driven jobs” and promote Western software over Chinese programs that “might be easily accessible” but “less efficient.”

“We know that our grants-based assistance can go even further when put together with public and private investments, which far outstrip the resources that the PRC has brought to the table to date,” the statement said.

Source : AP