Reserves are Depleting Faster than Anticipated: Next Year Will be Worse
Beijing has been engaging in dubious practices designed to hide the depletion of reserves caused by the support of the renminbi. For instance, there is incomplete reporting of its use of forward contracts to mask its selling of dollars, a trick Chinese technocrats learned from Brazil in 2013.
More important, Beijing has used its reserves, which are supposed to remain liquid, for long-term investments, such as the so-called One Belt, One Road infrastructure projects, and for loans to Venezuela and other risky borrowers. The reserves have also been deployed to capitalize China Investment Corp., the country’s sovereign wealth fund. No one outside a small circle in Beijing knows the amount of these ill-liquid investments, but they amount to at least $400 billion.
China’s liquid reserves are, in all probability, substantially less than Beijing claims, which means the country may soon run out of ammunition to defend the sagging renminbi. The liquid reserves are almost certainly far smaller than the $2.8 trillion IMF guidelines recommend China maintains.
None of this would matter if China’s economy were growing fast. The official National Bureau of Statistics has announced that gross domestic product increased 6.7% in each of the first three quarters of the year. Many observers believe growth is more likely to be half that figure.
China’s bubble economy is pushing past a 400% debt to GDP ratio, and shows no sign of slowing. In fact, China’s leaders cannot slow the debt carnage or they risk losing total control of the unstable system.
President-elect Trump intends to re-invigorate US industry and manufacturing, even if it kills China — and many of the US CEOs who supported Hillary Clinton’s failed bid to become another in the long line of corrupt China enablers. The election of Trump signals an entire new international trade regime that has only begun to register on the seismic scale. China’s bombastic threats of trade war are likely to fall on deaf ears, resulting in very real pain and injury to the heart of China’s bubble economy.
Like Putin, China’s Xi is Attempting a Grand Global Bluff Using a Much-Diminished Hand
China’s troubled “One Belt One Road” initiative is struggling to gain outside investment and legitimate global partners. The project has been secretly funded by China’s “reserves” along with several other grand and risky Chinese initiatives and outreaches. Many of these projects have already failed, and several others are due to follow in turn.
The primary rationale of these projects is strategic, not economic, and the large external commitments that they potentially entail, conservatively estimated at $1trillion, sans escalation costs, pose an added risk to an already overextended economy. __ China’s Illusory Power
China’s Need for Clean Water and Pristine Farmland is Growing Desperate
China is steadily and stealthily expanding into Siberia.
China and Russia share about 4,300 km of common borders, partially limited by the Amur River. On one side of the river, there are 1.4 billion Chinese, ¼ of the world’s population owning only 7% of the world’s arable land and having an extreme need for food resources (China is the largest importer of agricultural products). The border region of Heilongjiang alone has 40 million inhabitants. On the other side… the Russian Far East, numbering 6.5 million inhabitants with a distribution of 1.2 inhabitants per square kilometre. It is a very wealthy desert, almost totally untapped, but getting increasingly vacant, due to the decreasing birth rate in Russia and the migration of Siberian inhabitants (many of them are moving to western parts of their continent).
… China offers very cheap labour (the Chinese wages being lower than those of the Russian workers) contributing to deserted and impoverished territories, abandoned both by Russians and their central government, obsessed with the declining splendours of the West.
… China uses all possible means to ensure its expansion: exploitation of farm land, exploitation of forest areas, construction of road infrastructure and of high speed rail services connecting Chinese cities to Vladivostok, transportation lines for goods to Yekaterinburg, and also to other destinations in western countries like Germany, France, and Iran. In addition, these include border raisings along the Chinese-Russian road network, allowing the drawing of direct lines between China and Russia, bypassing Mongolia or less secure countries like Kyrgyzstan and Kazakhstan, multiplication of free border areas for commercial transactions, and massive investment in the construction of oil and gas pipelines bringing Russian oil and gas to China. Furthermore, it allows direct use of energy resources through windfall contracts, real estate investments, and so on and so forth. This policy is being strongly supported by the Chinese banks and institutions through financial transaction agreements in rubles, through bank loans given to Russian companies and individuals, or even the swap agreement between the central banks…
Russia cannot afford to hold onto its Far East, as its economy and infrastructures steadily crumble under Putin’s neo-imperial policies. China is already leasing large swathes of land and employing stealth immigration and economic takeovers of key Russian businesses in the Far East. China is buying significant shares of Russian energy and mining companies, and insinuating itself ever more deeply into Russian defence technologies — all the while China reverse-engineers Russian weapons and competes against Russia in the global arms sales markets.
As for Putin’s attempts to enlarge Russia’s “sphere of influence” to include Ukraine, forget about it. China has far too much invested in Ukraine and many of the other Eastern and Central European nations to allow Russia to re-occupy and rape those nations once again.
China is Russia’s Best Frenemy Forever!
We can recall the Hitler-Stalin pact and how that turned out. We all know the end of this story. So why is China using its dwindling reserves to gamble on acquisitions it may not be able to hold — and why is Putin putting so much of Russia’s vital future assets on the auction block? Desperation, on both counts. For China, it was always assumed that double digit economic growth rates would continue into the indefinite future. No one expected growth rates to plummet to 3% or less. For Russia, Putin’s slippery grip on power depends upon projecting an appearance of strength and global power to the people of Russia and to dim-witted westerners. He is using China’s economic clout — such as it is — to bolster his claim.
But in the end, both desperate frenemies have secret agendas which will come out into the open, in the end. That is when the sparks will fly.
China makes threats: “Appease me or I will kill myself!”