China
U.S. national debt is its Achilles’ heel, but China sees it as an opportunity
China is emerging as a dominant force in the Global South, challenging U.S. dollar hegemony by increasing gold reserves and reducing U.S. debt holdings, aiming for a multipolar economic landscape.
China is gradually establishing itself as a major player in what has recently been called the Global South, previously known as the Non-Aligned Movement. Over the last few decades, China has become the world’s biggest creditor of developing countries. That has prompted many to fear that it will subjugate partners through the “debt trap” and use this to establish a “hegemonic sphere of influence.”
China’s economic position is so strong that it is now considered the main threat to the U.S. dollar. It is an influential member of the BRICS+ group (which also includes Brazil, Russia, India and South Africa). This group is working to establish a multipolar world that challenges the hegemony of the West, specifically the leadership of the United States. I analyzed this issue in a previous article.
Without using the term “threat,” the U.S. administration now sees China as the “most serious long-term challenge” to the international order. It’s easy to understand why, since China’s strategic objective is to put an end to the supremacy of the U.S. dollar, the keystone of U.S. hegemony.
As a researcher in international political economy at the Université Laval, I am looking at the role China is playing in the dedollarization of the world.
The stronghold of the U.S. dollar
The supremacy of the U.S. dollar underpins American hegemony in the current international order, as French economist Denis Durand explains in his article Guerre monétaire internationale: l’hégémonie du dollar contestée? (International currency war: the dollar’s hegemony challenged?).
In addition to the fact that several currencies are linked to the dollar by a fixed link or band of fluctuation, American currency is also used in many Third World and Eastern European countries, where it enjoys a much higher level of public confidence than do local currencies. […] The United States is the only power that can incur foreign debt in its own currency.
The hegemony of the U.S. dollar over the world economy is reflected in its over-representation in the foreign exchange reserves held by the world’s central banks. The greenback still outstrips other currencies even though there has been some erosion in this.
Despite a fall of 12 percentage points between 1999 and 2021, the share of the U.S. dollar in the official assets of the world’s central banks remains fairly stable at around 58-59 per cent.
U.S. currency still enjoys widespread confidence around the world, reinforcing its status as the preeminent reserve currency. The U.S. dollar reserves of the world’s central banks are invested in U.S. Treasury bills on the U.S. capital market, helping to reduce the cost of financing both government debt and private investment in the United States.
However, the income generated for the U.S. economy by the hegemony of its dollar could also collapse like a house of cards. Durand makes this point when he writes that “the monetary hegemony of the United States […] is held together only by the confidence of economic agents around the world in the American dollar.”
There are two reasons that the world’s confidence in the U.S. dollar could decrease.
Firstly, as U.S. Treasury Secretary Janet Yellen admitted in an interview in April 2023, the United States is unequivocally using its dollar as a tool to bend enemies — but also some recalcitrant allies — to its will. This could ultimately undermine the dollar’s hegemony.
On the other hand, the U.S. debt situation, particularly its unsustainability, is a source of concern that could affect the dollar’s attractiveness as a global reserve currency.
Unsustainable debt
The U.S. dollar has been at the heart of the international monetary system since 1944, and even more so since the Bretton Woods Agreement came into force in 1959.
The Bretton Woods system was based on both gold and the greenback, which was the only currency convertible into gold; this convertibility was fixed at the rate of $35 per ounce.
That changed on Aug. 15, 1971, when, because of inflation and the growing imbalances in the United States’ international economic relations, Richard Nixon announced the end of the dollar’s convertibility into gold.
With the dollar pegged to gold, the United States’ ability to take on debt to meet public spending was limited. Under the gold-based system, where gold was the guarantor of the U.S. currency, the United States could only borrow according to the quantity of dollars in circulation and its gold reserves.
Abandoning the gold-based system gave the U.S. free rein over its debt. In 2023, the U.S. public debt reached more than $33.4 trillion, nine times the country’s debt in 1990.
This astronomical figure continues to raise concerns about its long-term sustainability. As U.S. Federal Reserve Chairman Jerome Powell has pointed out, U.S. debt is growing faster than the economy, making it unsustainable in the long term.
An opportunity for China
This is a reality to which China is clearly attuned, since it recently undertook a massive sell-off of the U.S. debt it owned. Between 2016 and 2023, China sold $600 billion worth of U.S. bonds.
However, in August 2017 China was the United States’ largest creditor, ahead of Japan. It held more than $1.146 billion in U.S. Treasuries, almost 20 per cent of the amount held by all foreign governments. Beijing is now the second-largest foreign holder of U.S. debt, with a claim of around $816 billion.
It is certainly no coincidence that before divesting itself of U.S. bonds, Beijing first launched its own gold pricing system in yuan. In fact, on April 19, 2016, the Shanghai Gold Exchange, China’s operator for precious metals, unveiled on its website its first “fixed” daily benchmark for gold at 256.92 yuan per gram.
This policy is part of China’s strategy to make gold a tangible guarantee of its currency.
China’s “Gold for Dollars” strategy
China is also selling its U.S. bonds. According to the U.S. Treasury, between March 2023 and March 2024, China sold off $100 billion in U.S. Treasuries, on top of the $300 billion it had already sold off over the past decade.
At the same time, the Middle Kingdom has replaced around a quarter of the U.S. Treasuries sold in 10 years with gold, of which it is now the leading producer and consumer. Like China’s central bank, other central banks in emerging countries continue to buy gold.
China’s appetite for gold was confirmed in 2010, when its gold reserves rose to 1,054 tonnes, from around 600 tonnes in 2005. Ten years later, in 2020, its stock of gold had almost doubled again, to nearly 2,000 tonnes. By the end of 2023, with a gold reserve of 2,235 tonnes, China will be the country with the sixth-largest gold reserve.
As a substitute for the dollar, gold enables China to store the gains from its large trade surpluses. With the Shanghai Gold Exchange, which offers gold trading contracts in Yuan, Beijing is seeking to strengthen the use of its currency abroad with the aim of establishing the yuan as the benchmark currency for the global economy.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Business
HSBC Chairman to Head Key UK Business Delegation to China
HSBC Chairman Mark Tucker will lead a UK business delegation to China next month to boost trade and investment, amid concerns over national security and improving UK-China relations.
HSBC Chairman Leads UK Delegation to China
HSBC Chairman Mark Tucker will lead a pivotal British business delegation to China next month, marking the first significant visit since 2018. The trip aims to enhance Chinese investment in the UK, guided by Chancellor Rachel Reeves. Tucker, a seasoned financier with extensive Asia experience, is regarded as essential in resetting UK-China relations.
Reviving Economic Dialogue
Tucker will accompany senior bankers in seeking to rejuvenate trade, specifically focusing on financial services. Although there are apprehensions among some UK lawmakers regarding national security threats posed by closer ties to Beijing, the UK Treasury spokesperson confirmed Chancellor Reeves’ upcoming discussions on economic cooperation in Beijing.
A Shift in UK-China Relations
Since suspending most dialogues following China’s imposition of a national security law in Hong Kong, UK-China relations have soured. Nevertheless, the Labour government is prioritizing improved ties with China, emphasizing investment opportunities. Reeves asserts the necessity of a pragmatic approach to benefitting national interests amid ongoing concerns voiced by some lawmakers about security risks.
Source : HSBC Chairman to lead pivotal UK business delegation to China
China
China’s November 2024 Economy: Navigating Mixed Signals and Ongoing Challenges
In November 2024, China’s economy exhibited mixed results: industrial production rose by 5.4%, while retail sales grew only 3%, below forecasts. Fixed asset investment also faltered. Policymakers are anticipated to introduce measures to stimulate domestic demand and combat deflation.
China’s economy showed mixed performance in November 2024, with industrial production and exports showing resilience, while retail sales and fixed asset investment underperformed, amid ongoing challenges in the property sector. Policymakers are expected to implement targeted fiscal and monetary measures to boost domestic demand and address deflationary pressures.
The National Bureau of Statistics (NBS) has released China’s economy data for November 2024, revealing a mixed performance across key indicators. Retail sales grew by 3 percent year-on-year, a significant slowdown from October’s 4.8 percent growth and well below the 4.6 percent forecast. Industrial production, however, showed resilience, rising by 5.4 percent and exceeding expectations of 5.3 percent growth.
The property sector continued to drag on the broader economy, with real estate investment contracting by 10.4 percent for the January-to-November period, further highlighting the challenges in stabilizing the sector. Fixed asset investment also fell short of expectations, growing by 3.3 percent year-to-date, down from 3.4 percent in October.
In November, China’s industrial value added (IVA) grew by 5.4 percent year-on-year (YoY), slightly accelerating from the 5.3 percent recorded in October. This modest improvement reflects continued recovery in key industries, supported by recent stimulus measures aimed at stabilizing the economy.
The manufacturing sector led the growth, expanding by 6.0 percent YoY, while the power, heat, gas, and water production and supply sector grew by 1.6 percent. The mining industry posted a 4.2 percent YoY increase. Notably, advanced industries outpaced overall growth, with equipment manufacturing and high-tech manufacturing rising by 7.6 percent and 7.8 percent YoY, respectively, underscoring the resilience of China’s innovation-driven sectors.
Key product categories showed robust output gains in November:
From January to November, IVA increased by 5.8 percent YoY, maintaining steady growth over the year despite headwinds from a slowing property market and external uncertainties.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
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China
Ukraine war: 10% of Chinese people are willing to boycott Russian goods over invasion – new study
Since Russia’s 2022 invasion of Ukraine, some Chinese citizens express dissent through potential boycotts of Russian goods, reflecting a complex relationship despite government support for Russia.
Since Russia invaded Ukraine in 2022, the Chinese government has been criticised for its refusal to condemn the war. In 2024, the economic and diplomatic relationship between the two nations appears stronger than ever.
Because of strict censorship and repression imposed by the Chinese Communist Party (CCP), it is difficult to know the extent to which the general public shares their government’s support of Putin’s regime. But a newly published study I carried out with colleagues found that more than 10% of Chinese people surveyed were willing to boycott Russian goods over the war in Ukraine.
This is a surprisingly large figure, especially since existing surveys indicate that Chinese people hold a broadly positive view of their neighbour. We used a representative sample of 3,029 Chinese citizens for this research, to dig into public attitudes to Russia. The survey was done in 2022 after the Ukraine invasion.
We were aware that due to widespread censorship, our participants might not be willing to give honest answers to questions about Russia’s actions in Ukraine. They might also not feel safe to do that in a regime where disagreement with the CCP’s position is often met with harsh punishment. This is why we asked them to tell us if they would be willing to boycott Russian products currently sold in China.
We felt this question was a good indicator of how much the participants disapproved of Russian foreign policy in Ukraine. More importantly, we were also curious to find out whether Chinese citizens would be willing to take direct political action to punish Russia economically for its aggressive behaviour.
In our study, we split respondents into the three different ideological groups in China: “liberals”, who support the free market and oppose authoritarianism; “the new left”, who sympathise with the policies pursued in China under Mao Zedong; and “neo-authoritarians”, who believe the Russian-Ukrainian conflict is an extension of the rivalry between authoritarian China and the liberal United States. These groups were based on the main political beliefs in China.
We found that liberals were most likely to say they were willing to boycott Russian products. Liberals believe that China should work with, rather than against, western democracies. They also place a high value on human rights and democratic freedoms. Because of their beliefs, they are likely to think that Russia’s actions against Ukraine were unprovoked, aggressive and disproportional.
Chinese and Russian economic and diplomatic relations seem closer than ever in 2024.
American Photo Archive/Alamy
The new left and neo-authoritarians we surveyed were more supportive of Russian products. The new left see Russia as a close ally and believe that Nato’s expansion in eastern Europe was a form of aggression. Neo-authoritarians, on the other hand, believe that supporting Russia, an allied autocracy, is in China’s best interest.
Boycotting Russian goods
Asking Chinese participants if they are willing to boycott Russian products might seem like a simple matter of consumer preferences. However, our study reveals a great deal about the way in which regular citizens can express controversial political beliefs in a repressive authoritarian regime.
Boycotting products of certain companies has long been studied in the west as a form of unconventional political action that helps people express their beliefs. However, in the west, boycotting certain products is simply one of many ways people are able to take political action. In a country such as China, boycotting a Russian product might often be the only safe way to express disagreement with the country’s actions.
This is because citizens do not have to tell others they chose not to buy a product, and their actions are unlikely to attract the attention of the authorities.
Since Russian goods are readily available to Chinese consumers and China is encouraging more Russian exports to reach its market, the Russian economy could be significantly affected by an organised boycott campaign in China. The considerable level of support for a boycott expressed by some of our participants, as well as previous acts of solidarity with Ukraine in China, suggest that such a campaign could already be taking place in the country.
This could harm Russia because it regularly exports a number of different products such as meat, chocolate, tea and wine to China. These goods made up 5.1% of China’s total imports in 2023 – and this figure is likely to increase if Russia becomes more isolated from the west, and therefore more dependent on China for its trade.
While 5.1% of the Chinese market might seem like a low figure, China is home to over 1.4 billion people. In this context, even a small boycott could result in a serious loss to Russian companies.
Our research shows that Chinese citizens don’t always support the official position of the communist party. It also shows that many people there will express even the most unpopular political opinions – if they can find a safe way to do it.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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