China’s stance on Russia’s war in Ukraine in the coming months will reshape global money and trade flows, possibly sparking the emergence of new economic spheres, investors said.
Last month, shortly before the Russian president Vladimir Putin send his forces to Ukrainehe and the Chinese president Xi Jinping declared in Beijing An association “unlimited”, with the promise of collaborating more against West.
Beijing has refused to join Western countries in condemning what Moscow qualifies for “special military operation”while asking for restraint from all parties.
trade between China and Russia increased 35% in 2021 to $146.9 billion, according to Chinese customs data, a trend likely to be fueled by new sanctions cutting Russia off from Western markets.
A shift in trade flows has been brewing since the Russian annexation of crimea of Ukraine in 2014, said Tom Jamesexecutive director of TradeFlow Capital Management on Singaporea trade finance fund.
“Russia has already started trading in renminbi (yuan) with China”he noted, adding that banks can deal with each other outside the network SWIFT – from which Moscow is now blocked – and China could benefit greatly, although not without risks.
Just over a quarter of Chinese exports to Russia were settled in yuan in the first half of 2021, down from just 2% in 2013, as both countries try to reduce reliance on the dollar.
“The X factor is the tariffs and the sanctions or quotas, if they are placed, in terms of the amount of Russian products that the countries are willing to take”James indicated. “It is already causing a kind of protectionism from countries for food security.”
Pressure
Financial markets have been volatile on concerns that a bloc Russia-China may face retaliation from United Stateswith Chinese stocks among the worst performers since the invasion of Ukraine began on February 24.
the chinese index Shanghai Composite and the Hang Seng From Hong Kong they have each lost about 6% since the start of the war. This compares with a gain of around 1% for global equities and 1.6% for the S&P 500.
Chinese currencyso far stable, it has also started to show moments of vulnerability and volatility, hitting a three-month low on Tuesday.
“The pressure is very great right now”a Chinese government adviser told Reuters on condition of anonymity.
“It is pragmatic to buy some oil and gas from Russia, but the whole world is looking at you. We don’t want to upset Russia, but at the same time it’s hard not to side with most countries.”he expressed.
Furthermore, China’s trade with Russia is dwarfed by its trade with Western countries. Last month, China’s trade amounted to $137 billion with the European Union (EU) and $123.3 billion with the United States, but only $26.4 billion with Russia.
Asked about the risks China could face if it provides economic aid to Russia, including the repercussions of sanctions, the Chinese Foreign Ministry told Reuters in a statement: “China and Russia will continue to carry out normal economic and trade cooperation in the spirit of mutual respect, equality and mutual benefit.”.
But the strain on world trade stemming from the war is already evident in export bans and supply chain difficulties.
The materials, from Indonesian charcoal to Egyptian legumes and vegetable oils, are not available for sale abroad.
Food buyers are rushing for rice to replace Ukrainian and Russian wheat, as a fertilizer shortage looms because the world has been cut off from Russian potash.
In its place are signs of a new order in which Russian exports of raw materials and energy find markets in China and India, while Australian minerals and gas end up in Europe.
Caution
the strategist of Morgan Stanley, Jonathan Garnerstated in a recent podcast that he was more cautious about India and China and who sought exposure to Australia as an exporter aligned with sources of global capital and therefore less likely to withdraw.
Indiafor its part, a buyer of Russian military equipment, it is considering an offer of Russian crude at a low price and, according to banking sources, it is studying the possibility of establishing a payment mechanism for trade between rupees and rubles.
Decisions by China, the world’s biggest exporter, have the potential to drive major flows of money and goods out of a dollar-dominated system, something Beijing has been trying to do for a decade.
“In essence, they are creating their own operating platform, which is different from the last 70 years of the US-led global capital system”I consider George Boubourashead of research K2 Asset Managementwhich invests globally from Melbourne.
This week the Wall Street Journal reported that talks between China and Saudi Arabia for oil trading in yuan, rather than dollars, had accelerated, which could mark a step forward in efforts to promote the yuan as a trade and reserve currency. Reuters was unable to confirm the report.
However, China maintains tight control over the yuan and its adoption as a reserve currency remains modest.
Most market participants also doubt that China will suffer a sudden exclusion from its western export markets, but there is a clear flavor of epochal change in market commentary.
“When this crisis (and the war) is over, the US dollar should be much weaker and, conversely, the renminbi (yuan) much stronger”said the strategist Credit Suisse, Zoltan Pozsarin a note outlining a “regime change” as China bought Russian raw materials.
Diego Grillwhich manages Igneous Quadrigaa $150 million fund designed to cash in on the turmoil, takes a very different view, betting on the yuan falling as trade fragments and China prints or borrows more and more to support its economy.
“There is no return from here. Russia goes to the East and not to the West. I believe that globalization as we know it is over, and that we are in a de facto bipolar world”I consider.
Source: Gestion
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