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Thoughts on China’s Currency

By Dean Baker | Beat the Press | August 9, 2019

There is a conventional wisdom on China’s currency that gets repeated almost everywhere and never seems to be challenged in the media. The basic story is that in the bad old days China ‘manipulated” its currency, but that stopped years ago. At present, its currency controls are actually keeping the value of its currency up, not down. As much as I hate to differ with the conventional wisdom, there are a few issues here that deserve closer examination.

First, it’s great see that everyone now agrees that China managed its currency in the last decade. (I prefer the term “manage” to “manipulate,” since the latter implies something sneaky and hidden. There was nothing sneaky about China’s undervalued currency. It had an official exchange rate that it bought trillions of dollars of foreign reserves to maintain.) Unfortunately, almost none of these people acknowledged China’s actions at the time, when the under-valuation of China’s currency was costing the United States millions of manufacturing jobs. Oh well, it wasn’t like the Wall Street bankers were losing their jobs.

The second point is that there is a common assertion that only the buying, not the holding, of reserves affects currency prices. It is easy to show that China is not currently buying large amounts of reserves. In fact, it has been selling some in recent years to keep its currency from falling.

Okay, let’s take a step back. The Federal Reserve Board bought more than $3 trillion in assets to try to boost the economy following the Great Recession. This was done to directly reduce long-term interest rates by increasing the demand for bonds. While it stopped buying assets several years ago, it still holds more than $3 trillion in assets.

Virtually all economists agree that by holding these assets, the Fed is keeping down long-term interest rates. If this additional $3 trillion in assets were on the market, then long-term interest rates would be higher. (The size of the impact is debated, but not the direction.)

If the holding (not buying) of assets has an impact on interest rates, why does China’s holding of more than $3 trillion in foreign reserves not have an impact on the price of the dollar and other reserve currencies relative to the RMB? (It would actually be well over $4 trillion if we add in the trillion plus dollars held in China’s sovereign wealth fund.)

In the magical world of make it up as you go along conventional wisdom economics there can be peaceful coexistence of this logical conflict, but those of us who are not part of the club need not accept it.

It’s also worth adding that the Fed has raised interest rates several times in the last three years, just as China has occasionally sold reserves. Would anyone say that this means that the net effect of the Fed’s actions at the moment is to raise interest rates above the level they would be at if the Fed were not holding assets?

Finally, we get the story that if China were to remove all capital controls then the value of the RMB would fall, as Chinese sought to diversify their holdings. While this is true, it is at best half of the story as every fan of I.M.F. policies knows. The I.M.F. always tells countries to eliminate capital controls because it will increase the amount of capital that flows into the country. Investors are more likely to put their money into a country where they can freely withdraw it than one where they can’t.

While the capital inflow story needs some qualifications, there is a basic logic to it. Obviously, foreign investors will feel more comfortable putting money into a country where they can get back their investment quickly than in one where they can’t. In spite of the fact that this logic is imposed on developing countries all the time, it is virtually invisible in discussions of China’s currency.

As a practical matter we continually see stories about how European retirees are unhappy with the negative interest rates they get on the bonds of countries like Germany and France. Getting an interest rate of more than 3.0 percent on long-term bonds issued by the Chinese government would look pretty good in comparison. Furthermore, with China’s purchasing power parity GDP almost twice its GDP measured by exchange rates, most people would probably expect the general direction of its currency over the long-term to be upward, as it has been in the past. This would further increase the potential gains from holding Chinese government debt relative to the debt of European countries or the United States.

It seems as though the conventionally wise people never thought about this issue, or at least if they have, they don’t mention it in public discussions. Anyhow, it is not surprising that the conventional wisdom is missing much of the story here. After all, the conventional wisdom in economics could not see the $8 trillion housing bubble ($12 trillion in today’s economy), the collapse of which sank the U.S. economy and gave us the Great Recession. The conventional wisdom doesn’t seem any wiser today.

August 9, 2019 Posted by | Economics | , | Leave a comment

US Leaves INF Because “Russia,” But Points Missiles at China

By Ulson Gunnar – New Eastern Outlook – 08.08.2019

We’re told that the US withdrawal from the Intermediate-Range Nuclear Forces (INF) Treaty singed in 1987 between the US and Soviet Union was based on claims that Russia had violated it.

While we continue waiting for Washington to provide evidence to prove these claims, the US itself admitted it had already long begun developing missiles that violated the treaty.

A February 2018 Defense One article titled, “Pentagon Confirms It’s Developing Nuclear Cruise Missile to Counter a Similar Russian One,” admitted that:

The U.S. military is developing a ground-launched, intermediate-range cruise missile to counter a similar Russian weapon whose deployment violates an arms-control treaty between Moscow and Washington, U.S. officials said Friday.

The officials acknowledged that the still-under-development American missile would, if deployed, also violate the Intermediate-Range Nuclear Forces Treaty.

Just as the US did when it unilaterally walked away from the 1972 Anti-Ballistic Missile Treaty in 2002, the goal is to blame Russia for otherwise indefensible and incremental provocations aimed at Moscow. For example, after the US walked away from the ABM Treaty in 2002, the US began deploying anti-missile systems across Europe.

But if Russia is the problem, why did the US also begin deploying similar missiles in Asia?

It is Washington’s goal of hemming in its competitors anywhere and everywhere that is at the heart of these serial treaty terminations, not any particular “violation” on Moscow’s part.

China Too   

That the US already had missiles under development that would undoubtedly violate the INF Treaty before it accused Russia of such violations, is one indicator of Washington’s true intentions. Another is the fact Washington is rushing to encircle China with both defensive and offensive missile systems as well.

China is not a signatory of either the ABM Treaty or the INF Treaty. Its missiles are deployed strictly within its mainland territory with no plans by Beijing to deploy them anywhere else in the future.

The only threat they pose is to any nation that decides to wage war on China, in or around Chinese territory.

Washington’s behavior post-INF Treaty indicates that it was its intent to violate the treaty all along, creating the same precarious security crisis in Asia the treaty sought to prevent in Europe.

The New York Times in its article, “U.S. Ends Cold War Missile Treaty, With Aim of Countering China,” would explain:

The United States on Friday terminated a major treaty of the Cold War, the Intermediate Nuclear Forces agreement, and it is already planning to start testing a new class of missiles later this summer.

But the new missiles are unlikely to be deployed to counter the treaty’s other nuclear power, Russia, which the United States has said for years was in violation of the accord. Instead, the first deployments are likely to be intended to counter China, which has amassed an imposing missile arsenal and is now seen as a much more formidable long-term strategic rival than Russia.

The moves by Washington have elicited concern that the United States may be on the precipice of a new arms race, especially because the one major remaining arms control treaty with Russia, a far larger one called New START, appears on life support, unlikely to be renewed when it expires in less than two years.

Here, the NYT admits that despite Washington claiming its termination of the INF Treaty was prompted by Moscow, its own actions since indicate Washington was already well underway of violating it itself. It did so not only to threaten Russia, but also to threaten China.

After months of accusing Russia of undermining the INF Treaty, the NYT itself reveals it was Washington who solely benefited from it, and specifically in terms of targeting China:

… the administration has argued that China is one reason Mr. Trump decided to exit the I.N.F. treaty. Most experts now assess that China has the most advanced conventional missile arsenal in the world, based throughout the mainland. When the treaty went into effect in 1987, China’s missile fleet was judged so rudimentary that it was not even a consideration.

The prospects of the US signing a new treaty with either Russia or China (or both) are nonexistent. The NYT article also reported that:

Chinese officials have also balked at any attempt to limit their missiles with a new treaty, arguing that the nuclear arsenals of the United States and Russia are much larger and deadlier.

The NYT fails to mention the other, and perhaps most important factor preventing Beijing from signing any treaty with Washington; Washington has already demonstrated categorically that it cannot be trusted. It just walked away from the INF Treaty based on deliberate lies implicating Russia while Washington all along was developing missiles it planned to deploy around the globe to hem in both Russia and China.

Dangerous Desperation 

While the Cold War is remembered as a precarious time, it was a time when agreements like the ABM and INF treaties were not only possible, they were signed and for the most part adhered to by two global powers who could agree an uneasy balance of global power was preferable to large scale war (nuclear or not) between the two.

During the Cold War, Washington was confident that it could not only maintain that balance of power, but eventually tip it in its favor, resulting in global hegemony. The collapse of the Soviet Union and the US invasion of Iraq certainly seemed to prove those behind this mindset right. But the window was already closing on the establishment of an uncontested US-led international order.

Today, Russia, China and a number of other emerging regional and global powers have all but assured US hegemony is no longer a viable geopolitical objective. The confidence that allowed the US to sign previous treaties and uphold them along with their Soviet counterparts no longer exists.

We live in a world today where the US has become a tremendous danger to global peace and security. The inability of treaties to exist that were even possible during the tense days of the Cold War takes us into unprecedented and dangerous territory.

Only time will tell if both Moscow and Beijing can find other mechanisms to avoid a dangerous and wasteful arms race in their backyards as a stubborn United States not only refuses to leave, but insists on bringing in incredibly dangerous weapons that will wreak havoc not on the territorial United States, but on the nations of Europe and East Asia should Washington’s desperation progress even further amid its waning global power.

August 8, 2019 Posted by | Deception, Militarism | , , | Leave a comment

It Doesn’t Matter At All That Oil is Priced in Dollars #43,656

By Dean Baker | Beat the Press | August 5, 2019

The New York Times ran a piece on China’s devaluation of its currency, which warned that the move could hurt China because commodities like oil, which are priced in dollars, will become more expensive for companies in China. While it is true that the devaluation will make imported goods more expensive, the fact that some are priced in dollars is irrelevant.

Suppose oil was priced in yen. Other things equal, the decision to devalue against the dollar would also mean that Chinese yuan is devalued against the yen. This would lead to the same increase in the price of oil as if oil were priced in dollars. The pricing in dollars is simply a convention, there is special importance to it in international trade.

The piece also raises the prospect that the drop in the value of the yuan, “could spur wealthy Chinese to take their money out of the country.” While it could have this effect, it may also have the opposite effect. Once the yuan has dropped in value the question is whether it is likely to fall further. This drop may lead many investors to believe that a further decline is unlikely, just as if the stock market fell by 20 percent, investors may come to believe that further decline is unlikely and therefore may be anxious to buy into the market.

It is also important to put the drop of the yuan in some context. The devaluation reduced the value of the yuan by less than 1.5 percent against the dollar. This is a large single day movement, but it is not that unusual for currencies to move around by this amount against each other even without government intervention. Also, a 1.5 percent reduction in the value of the yuan will not have large effects on the price in China of oil or other commodities.

August 6, 2019 Posted by | Economics | , | Leave a comment

Beijing urges Canada not to ‘naively’ rely on U.S. to pressure China

CGTN | July 3, 2019

Chinese Foreign Ministry spokesman Geng Shuang said on Wednesday that Canada is “fully responsible” for difficulties facing bilateral relations, stressing that Canada should not “naively” rely on the United States to pressure China.

Geng made the remarks at a regular press conference in response to recent remarks by Canadian Prime Minister Justin Trudeau regarding China’s detention of two Canadian citizens.

China confirmed last December that two Canadians – former diplomat Michael Kovrig and business consultant Michael Spavor – were being investigated on suspicion of “engaging in activities that endangered China’s national security.”

Trudeau said on Tuesday that he was “confident” that U.S. President Donald Trump had made good on his promise to raise the cases during his meeting with Chinese President Xi Jinping on the sidelines of the G20 summit in Japan’s Osaka last week.

Geng said China had published a news report on the meeting between Xi and Trump, noting that he has nothing to add.

“We hope the Canadian side would not be too naïve,” he said. “Don’t think naively that asking certain ‘ally’ to pressure China would work.”

China, whose judicial authorities work independently in accordance with the law, does not allow other countries to interfere in its judicial sovereignty, the spokesman stressed.

“The Canadian side should not naively believe that its so-called allies would make real efforts for it,” he said.

“Relations between China and Canada are currently undergoing severe difficulties and the Canadian side is fully responsible for that,” Geng said, urging Canada to take actions as soon as possible to bring bilateral ties back on the right track.

Tensions rose between Beijing and Ottawa late last year over the arrest of Chinese telecom giant Huawei’s Chief Financial Officer Meng Wanzhou in Canada.

Read more:

Wang Yi: Meng Wanzhou case ‘deliberate political move’

Huawei: Confident in the innocence of its CFO Meng Wanzhou

Meng was arrested on December 1, 2018, at Vancouver International Airport at the request of the United States, which is seeking her extradition on fraud charges. Both Meng and Huawei have repeatedly denied any wrongdoing. And Beijing has repeatedly demanded Washington to withdraw its arrest warrant and the extradition request against Meng.

July 4, 2019 Posted by | Aletho News | , , | Leave a comment

Hope for a Breakthrough in Korea

By Ray McGovern – Consortium News – July 1, 2019

There is hope for some real progress in U.S.-North Korean relations after Sunday morning’s unscheduled meeting between President Donald Trump and North Korean leader Kim Jong-Un, largely because Russia and China seem more determined than ever to facilitate forward movement.

Sitting down before the talks began, Kim underlined the importance of the meeting.“I hope it can be the foundation for better things that people will not be expecting,” he said. “Our great relationship will provide the magical power with which to overcome hardships and obstacles in the tasks that needs to be done from now on.”

Trump was equally positive speaking of Kim:

“We’ve developed a very good relationship and we understand each other very well. I do believe he understands me, and I think I maybe understand him, and sometimes that can lead to very good things.”

Trump said the two sides would designate teams, with the U.S. team headed by special envoy Stephen Biegun under the auspices of Secretary of State Mike Pompeo, to start work in the next two to three weeks. “They’ll start a process, and we’ll see what happens,” he said.

New Impetus

Russian President Vladimir Putin and Chinese President Xi Jinping, who met individually with President Trump at the G20 in Osaka, have been singing from the same sheet of Korea music — particularly in the wake of Xi’s visit to North Korea on June 20-21. Putin’s remarks are the most illuminating.

Putin at FT interview. (Kremlin photo)

In an interview with The Financial Times, Putin pointed to “the tragedies of Libya and Iraq” — meaning, of course, what happened to each of them as they lacked a nuclear deterrent. Applying that lesson to North Korea, Putin said,

“What we should be talking about is not how to make North Korea disarm, but how to ensure the unconditional security of North Korea and how to make any country, including North Korea, feel safe and protected by international law. …”

“We should think about guarantees, which we should use as the basis for talks with North Korea. We must take into account the dangers arising from … the presence of nuclear weapons,” he said, adding that if a way can be found to satisfy North Korea’s understandable determination to protect its security, “the situation may take a turn nobody can imagine today.”

“Whether we recognize North Korea as a nuclear power or not, the number of nuclear charges it has will not decrease. We must proceed from modern realities …” And those realities include fundamental, immediate security concerns for both Russia and China. Putin put it this way:

”[W]e have a common border, even if a short one, with North Korea, therefore, this problem has a direct bearing on us. The United States is located across the ocean … while we are right here, in this region, and the North Korean nuclear range is not far away from our border. This is why this concerns us directly, and we never stop thinking about it.”

Xi’s ‘Reasonable Expectations’

Last week in Pyongyang, Chinese President Xi Jinping said China is waiting for a desired response in stalled nuclear talks with the United States.

“North Korea would like to remain patient, but it hopes the relevant party will meet halfway with North Korea to explore resolution plans that accommodate each other’s reasonable concerns,” he said.

A commentary in China’s official Xinhua news agency said China could play a unique role in breaking the cycle of mistrust between North Korea and the U.S, but that both sides “need to have reasonable expectations and refrain from imposing unilateral and unrealistic demands.”

There is little doubt that the Russians and Chinese have been comparing notes on what they see as a potentially explosive (literally) problem in their respective backyards, the more so inasmuch as the two countries have become allies in all but name.

On a three-day visit to Moscow earlier this month, President Xi spoke of his “deep personal friendship” with Putin, with whom he has “met nearly 30 times in the past six years.” For his part, Putin claimed “Russian-Chinese relations have reached an unprecedented level. It is a global partnership and strategic cooperation.”

A Fundamental Strategic Change

Whether they are “best friends” or not, the claim of unprecedented strategic cooperation happens to be true — and is the most fundamental change in the world strategic equation in decades. Given the fear they share that things could get out of hand in Korea with the mercurial Trump and his hawkish advisers calling the shots, it is a safe bet that Putin and Xi have been coordinating closely on North Korea.

The next step could be stepped-up efforts to persuade Trump that China and Russia can somehow guarantee continued nuclear restraint on Pyongyang’s part, in return for U.S. agreement to move step by step — rather than full bore — toward at least partial North Korean denuclearization — and perhaps some relaxation in U.S. economic sanctions. Xi and Putin may have broached that kind of deal to Trump in Osaka.

There is also a salutary sign that President Trump has learned more about the effects of a military conflict with North Korea, and that he has come to realize that Pyongyang already has not only a nuclear, but also a formidable conventional deterrent: massed artillery.

“There are 35 million people in Seoul, 25 miles away,” Trump said on Sunday. “All accessible by what they already have in the mountains. There’s nothing like that anywhere in terms of danger.”

Obstacles Still Formidable

Trump and Kim meet Sunday before Trump became first US president to step on North Korean territory. (White House photo)

Trump will have to remind his national security adviser, John Bolton, and Secretary of State Mike Pompeo, that he is the president and that he intends to take a firmer grip on reins regarding Korean policy. Given their maladroit performance on both Iran and Venezuela, it would, at first blush, seem easy to jettison the two super-hawks.

But this would mean running afoul of the Military-Industrial-Congressional-Intelligence-Media-Academe-Think-Tank (MICIMATT) complex, in which the corporate-controlled media play the sine-qua-non role today.

In a harbinger of things to come, The Washington Post’s initial report on the outcome of the Trump-Kim talks contained two distortions: “Trump … misrepresented what had been achieved, claiming that North Korea had ceased ballistic missile tests and was continuing to send back remains of U.S. servicemen killed in the Korean War.”

The Trump administration could reasonably call that “fake news.” True, North Korea tested short-range ballistic missiles last spring, but Kim’s promise to Trump was to stop testing strategic not tactical missiles, and North Korea has adhered to that promise. As for the return of the remains of U.S. servicemen: True, such remains that remain are no longer being sent back to the U.S., but it was the U.S. that put a stop to that after the summit in Hanoi failed.

We can surely expect more disingenuous “reporting” of that kind.

Whether Trump can stand up to the MICIMATT on Korea remains to be seen. There is a huge amount of arms-maker-arms-dealer profiteering going on in the Far East, as long as tensions there can be stoked and kept at a sufficiently high level.

Ray McGovern works with Tell the Word, a publishing arm of the ecumenical Church of the Saviour in inner-city Washington. His first portfolio at CIA was referent-analyst for Soviet policy toward China, Korea, Vietnam, and Japan. In retirement he co-founded Veteran Intelligence Professionals for Sanity (VIPS).

July 1, 2019 Posted by | Fake News, Mainstream Media, Warmongering, Militarism | , , , | Leave a comment

US Coastguard Ships Sent Over 8,000 km From Own Shores to South China Sea for ‘Law Enforcement’

Sputnik – June 11, 2019

The US Coast Guard has deployed two cutter vessels, the USCGC Bertholf and the USCGC Stratton, with the US Seventh Fleet in Yokosuka, Japan to help challenge China’s claims over wide swaths of the South China Sea, Coast Guard Pacific Area commander Vice-Admiral Linda Fagan has said.

Speaking at a press call on Tuesday morning, Fagan indicated that the vessels were being sent to the region to assist with “law enforcement and capacity-building in the fisheries enforcement realm.”

Earlier this year, the USCGC Bertholf took part in one of the US Navy’s regular demonstrative transit sails through the Taiwan Strait in March, with China criticising that effort and saying it served only to strain China-US relations.

Last month, the Bertholf also joined two Philippine coast guard vessels for “maritime security” training operations in the South China Sea, with the drills taking place near a shoal area contested by both Beijing and Manila.According to Vice-Admiral Fagan, the Coast Guard’s mission in the region is to support its local partners. “We are very much interested in engaging with partner nations in using our authorities and capacity building in a way that is helpful,” she stressed.

Earlier this month, Chinese Defence Minister Wei Fenghe accused Washington of deliberately escalating tensions in the South China Sea, accusing ‘countries from outside’ of coming in “to flex muscles, in the name of freedom of navigation.”

“The large-scale force projection and offensive operations in the region are the most serious destabilising and uncertain factors in the South China Sea,” the defence minister said.

Formally charged with ensuring coastal defence and maritime security near America’s shores, the US Coast Guard has been regularly deployed abroad since the days of the Cold War, and has engaged in security and anti-piracy, search and rescue and other missions around the globe since then. The two Coast Guard vessels’ deployment to the South China Sea takes the ships over 8,000 km southwest of the westernmost US island in the Bering Sea, north of the Pacific Ocean.

China controls the vast majority of islands, reefs, and shoals in the South China Sea, and has regularly expressed concerns about the deployment of US vessels in the area. Along with China, portions of the strategic sea zone are claimed by the Philippines, Vietnam and Malaysia, as well as Taiwan, an island nation which Beijing considers part of its territory.The South China Sea is a major strategic passageway, with over $5 trillion worth of maritime cargo, including much of China’s Middle Eastern oil supplies, passing through the area each year. Much of the sea territory is also rich with fishing stocks and energy resources.

June 11, 2019 Posted by | Militarism | , , | Leave a comment

The Geo-Port-Politics of Gwadar and Chabahar

By Salman Rafi Sheikh – New Eastern Outlook – 08.06.2019

In a highly surprising move, Iran’s foreign minister, on an unscheduled and unannounced visit to Pakistan on Thursday (May the 23rd), announced the proposal to link Pakistan’s port of Gwadar with Iran’s Chabahar port. This announcement signals tectonic geo-political shift taking place in the region in the wake of increasing tensions between the US and Iran. The US has already successfully forced India, its chief South Asian ally, to scrap its purchase of oil from Iran, a country India was not long ago claimed to have entered into a strategic alliance with. Although the US has somehow left Chabahar out of its net of sanction, India’s decision to follow the US in its footsteps does signal its participation in the US policy of crippling Iranian economy and take Iran to the verge of massive political disruption and eventual regime change. Iran, obviously, is not unmindful of the implications of this particular decision of India.

Iran’s proposal to link Chabahar with Gawadar, despite the fact that the US sanctions don’t apply on the post, shows the deep sense of Indian betrayal prevailing in Tehran and a counter-manoeuvre to avoid isolation. Iran, obviously, does not expect India to be as robust and committed to building the rest of the port as it would have in a peaceful and sanction-less scenario. Iran, logically enough, is boosting its ties with its immediate neighbour, a country that already is deeply allied with China and aims to expand CPEC to Iran to increase regional connectivity. With Chabahar and Gwadar being linked, Iran will thus have two major regional states on its side i.e., Pakistan and China and will be far better placed in China’s extended regional connectivity programme than it is now. Zarif’s connectivity proposal itself tells everything. To quote him:

“We believe that Chabahar and Gwadar can complement each other. We can connect Chabahar and Gwadar, and then through that, connect Gwadar to our entire railroad system, from Iran to the North Corridor, through Turkmenistan and Kazakhstan, and also through Azerbaijan, Russia, and Turkey.”

As far as the US—Iran tension is concerned, unlike India, Pakistan has already said that it will not take sides in the conflict. Pakistan’s neutrality in the on-going scenario suits Tehran far more than it does for the US, that is if it does at all.

There is also no gainsaying that Tehran’s proposal to connect the two ports couldn’t have come with prior consultation with the Chinese, who are practically running the port in Pakistan. Accordingly, before coming to Pakistan, Zarif was in China where he met his Chinese counterpart and certainly discussed this proposal, leading Chinese foreign minister to “Welcome Iran” to actively take part in the joint building of the Belt and Road Initiative (BRI) through Chabahar.

China also re-affirmed its support for Iran. “China firmly opposes unilateral sanctions and the so-called ‘long-arm jurisdiction’ imposed by the United States on Iran,” Wang said, pledging to maintain the Joint Comprehensive Plan of Action and safeguard the authority of the United Nations and basic norms governing international relations.

Chinese support’s major manifestation came a few days ago when Chinese oil tanker Pacific Bravo left the Persian Gulf with 2 million barrels of Iranian light crude, ignoring the US sanctions and practically challenging the US unilateralism.

Pacific Bravo is owned by Bank of Kunlun, a financial institution that is owned by the Chinese state oil company CNPC. Bank of Kunlun has long been the financial institution at the heart of China-Iran bilateral trade—a role for which the company was sanctioned during the Obama administration. Despite already being designated, Bank of Kunlun ceased its Iran-related activities in early May when the oil waivers were revoked. But Bravo’s current moves point to a change in Chinese policy. Importantly enough, Bravo sailed from the Persian Gulf on the same day that Zarif arrived in Beijing and met Chinese foreign minister to discuss Iranian participation in the BRI (through linking Gwadar and Chabahar).

With Iran now taking this fundamental shift, what is apparent is that a major foreign policy shift in Iran has taken place whereby its leadership has come to an understanding that their relations with the US are unlikely to take a positive turn for a long time and that a necessary adjustment in the foreign policy is absolutely needed. As a matter of fact, it was only a few days ago when Iran’s supreme leader criticised Iran’s foreign policy and dropped a major hint about why changing the course of foreign policy was an utmost necessity.

Of course, its major manifestation is reorienting Iran’s relations with Pakistan via participation in the BRI. Pakistan will be least concerned about any US reaction over linking Gwadar with Chabahar, for the US sanctions do not apply to the Iranian port. But the fact that the geo-political significance of the port will undergo a significant change after a successful linkage between the two ports and that China will become a major player, the US might feel ‘compelled’ to direct its sanctions toward the port eventually.

June 8, 2019 Posted by | Economics | , , , , | Leave a comment

Guyana Could be the United States’ ‘Secret Weapon’ Against Venezuela – Scholar

Sputnik – June 1, 2019

In 2015, ExxonMobil discovered large oil fields just off the coast of Guyana. The reserves are estimated at 5.5 billion barrels. What does this hold in store for the Latin American country’s future? And what does Venezuela have to do with this?

Today, Guyana is the second poorest country in the region. According to some estimates, over the next few decades, it may become one of the world’s largest oil producers per capita. However, the availability of resources doesn’t always mean economic prosperity. The small Caribbean country could just become another piece of the puzzle that the United States is putting together in the region, said Tamara Lajtman, an expert at the Latin American Strategic Centre for Geopolitics (CELAG).

The entire history of relations between the United States and Latin American nations and the Caribbean region indicates that American transnational companies will be the ones who will benefit most from this discovery.

Guyana vs Venezuela

Lajtman shared the viewpoints of American experts who believe that Washington can replace Venezuelan oil from a “regional petroleum regime” with a much more stable supplier.

The expert said that at the end of last year, the American Security Project (ASP) organised a conference called “Guyana: Building Sustainable Security”. This organisation studies national security issues, among the members of its board, are former US Secretary of State John Kerry and former US Secretary of Defence Chuck Hagel. The participants in the said event included Vice Admiral Kevin Green, the former head of US Naval Forces Southern Command.As a result of the meeting, a document was drafted in which it was suggested that American politicians establish closer relations with Guyana in order to guarantee long-term security. The report also noted that since the crisis in Venezuela continues to escalate, a prosperous and developing Guyana could become an axis of stability in the Caribbean, Lajtman added.

According to the Stratfor agency [an American private intelligence and analysis company], some major oil producing companies in the United States have already begun working in Guyana. However, although the revenues of Guyana’s government will increase, a large part of the country won’t feel the economic benefits of oil production, since basically all the jobs in the sector have been designated for foreigners.

Military Presence

In early May, the US Navy Southern Command began New Horizons drilling in Guyana. According to the ASP (American Security Project), they are being held at just the right moment, “when Guyana is at the very centre of regional geopolitics”.

There are two reasons for this: the crisis in neighbouring Venezuela and the energy future of the Caribbean country. The situation is aggravated by a land dispute between Caracas and Georgetown over the Essequibo River. A zone of 160,000 km2 has been claimed by Venezuela for several centuries and the dispute is still unresolved. The United States sees a threat to drilling operations near the maritime border between the two countries.

Economic Aspect

For many decades, Guyana was considered a transit country for cocaine on its way from Colombia to the United States. In light of this, the government has implemented various anti-drug assistance programmes and enacted laws to combat money laundering and the financing of terrorism. With the growth of oil revenues more could be done about this.

In July 2018, Guyana joined China’s New Silk Road initiative, which includes investments in the construction of ports and roads. This would be the largest project ever carried out in the country. It is of key geostrategic importance since it will reduce the time of transportation for goods to northern Brazil (China’s main trading partner in the region) and make the route to the Panama Canal faster.The expert also noted that one of China’s largest national oil companies —  CNOOC (China National Offshore Oil Corporation), owns a 25% stake in ExxonMobil’s Stabroek block.

June 1, 2019 Posted by | Economics | , , , , | Leave a comment

Hungary’s Foreign Minister Calls Western Europe ‘Hypocrites’ for China Criticism

teleSUR | May 23, 2019

Hungary’s foreign minister Thursday accused major Western European nations of “hypocrisy” and “hysteria” for criticizing central European countries’ business dealings with China, and defended Hungary’s use of Huawei 5G mobile phone technology.

Sixteen central and eastern European countries, including 11 European Union members, held a summit with China in April during which it pledged to increase trade and provide more support for big cross-border infrastructure projects.

The area is part of China’s Belt and Road Initiative, which aims to link China by sea and land with Southeast and Central Asia, the Middle East, Europe and Africa.

France and Germany oppose such independent moves, which they fear might make Europe appear disunited at a time when the EU is trying to forge a more defensive strategy towards China.

On Tuesday, speaking to reporters in Paris, France’s Finance Minister Bruno Le Maire criticized “negotiations of 16 states from the east with China in parallel to negotiations that the EU is leading with China”.

But Hungarian Foreign Minister Peter Szijjarto, who is serving in the government of far-right Prime Minister Victor Orban, rejected such criticism, saying Germany and France do far more business with China than the central European states, and often negotiate directly with Beijing.

“There is such a bad hypocrisy in the European Union when it comes to China,” Szijjarto told Reuters on the sidelines of an OECD meeting in Paris. “The 11 central and eastern European member states … represent 9.9 percent of EU trade with China.”

“When the German chancellor and French president meet China’s leadership nobody thinks that’s a problem,” he said. “Nobody raises a question about how it is possible that they sell 300 aircraft to China, which is a bigger deal than the (entire) trade represented by the 11 central European countries.”

He said it was also unfair for Western European states to criticize Hungary for using technology from Chinese firm Huawei in its 5G mobile phone networks, when those networks were being built under license by German and British companies, Deutsche Telekom and Vodafone.

Hungary’s government has been at odds with Brussels for the erosion of media and judicial independence, attacks on civil organizations, treatment of migrants, laws against poverty, and the ousting of educational institutions like the progressive Central European University.

May 24, 2019 Posted by | Economics, Progressive Hypocrite | , , | Leave a comment

Will China engage in arms control?

By M. K. BHADRAKUMAR | Indian Punchline | May 5, 2019

US President Donald Trump’s phone call to his Russian counterpart Vladimir Putin on Friday comes within 3 weeks of the release of the redacted report of the Robert Mueller inquiry into his ‘Russia collusion’. It was a 90-minute phone conversation, which underscored Trump’s determination to foster good relations with Putin notwithstanding the narrative that he and the people around him were engaged in improper activities with Russia.

The Kremlin readout listed economic ties, ’strategic stability’, North Korea, Ukraine and Venezuela as topics that figured in the conversation.

But the headline-hogging news is that Trump proposed to Putin the idea of expanded arms control talks that would also include China. Trump claimed that China is on board. Talking to the media at the White House, he said:

“We’re talking about a nuclear agreement where we make less and they make less, and maybe even where we get rid of some of the tremendous firepower that we have right now. We’re spending billions of dollars on nuclear weapons, numbers like we’ve never spent before. We need that, but they are also — and China is, frankly, also — we discussed the possibility of a three-way deal instead of a two-way deal. And China — I’ve already spoken to them; they very much would like to be a part of that deal. In fact, during the trade talks, we started talking about that. They were excited about that.  Maybe even more excited than about trade.  But they felt very strongly about it.”

“So I think we’re going to probably start up something very shortly between Russia and ourselves, maybe to start off. And I think China will be added down the road. We’ll be talking about nonproliferation. We’ll be talking about a nuclear deal of some kind.  And I think it will be a very comprehensive one.”

Trump sees a potential signature foreign policy achievement. Trump is known to have a penchant for big deals. The Washington Post reported last week that Trump “has ordered his administration to prepare a push for new arms-control agreements with Russia and China after bristling at the cost of a 21st-century nuclear arms race.” The reports from Washington indicate that the White House is conducting intense interagency talks to develop options for the president to pursue such a deal.

The CNN quoted a senior White House official as saying, “The President has made clear that he thinks that arms control should include Russia and China and should include all the weapons, all the warheads, all the missiles. We have an ambition to give the President options as quickly as possible to give him as much space on the calendar as possible.”

Trump is giving conflicting signals. Even as he talks about arms control, Trump has backed the $500 billion Obama-era project to modernize the US atomic arsenal, pulled out of the INF Treaty with Russia, and updated the US nuclear posture to be more aggressive. But then, earlier last month, in a meeting with Chinese trade envoy and vice premier Liu He, Trump bemoaned the levels of military spending by major powers, suggesting all that money could be better spent on other things.

Clearly, in any emergent scenario, the broader context of relations will be the key factor. Bringing China on board arms control talks is a common Russian-American agenda. To understand this, we need to go back in time to the negotiation of the Intermediate-Range Nuclear Forces (INF) Treaty.

Fundamentally, China’s approach to arms control has been different from the US or Russia’s. Washington and Moscow have been historically driven by the strategic imperative of parity that generated in turn the Cold-War era arms race and its ‘anti-thesis’ — arms control and reductions. And the concept of mutual nuclear deterrence and stability was shared and interdependent.

China, on the contrary, never sought parity and had no reason to enter into an arms race or to engage in arms control. Today, China reportedly has an arsenal of less than 300 strategy warheads (as against 1550 that the New START Treaty of 2010 allows the US and Russia to keep.) Simply put, China stayed on the sidelines, maintaining that the US and Russia need to reduce their arsenals first before its participation in limitations and reductions.

When the INF Treaty was negotiated in the 1980s, although its leitmotif was European security, the pact also had implications for East Asian security. China was on adversarial terms with Russia at that time and joined hands with the western powers to ensure two things: a) Britain and France were kept out of the INF Treaty (lest that set precedent for China’s inclusion), and, b) INF Treaty also included Soviet deployments east of the Urals.

China scored a big diplomatic coup when the Soviet leader Mikhail Gorbachev made the unilateral announcement in July 1987 agreeing to the so-called global ‘zero option’ by the Soviet Union (ie., elimination of Soviet INF missiles in both Europe and Asia.)  In essence, China ensured the complete elimination of Soviet missile threat to its nuclear arsenal.

Moscow never quite reconciled with Gorbachev’s compromise. Meanwhile, the Cold War ended and the Soviet Union imploded. Yet, by the beginning of 2005, Moscow began to voice unease that INF Treaty banned only the US and Russia from having INF missiles, while other countries were free to deploy them. In 2007, then Russian Defense Minister Sergei Ivanov called the INF Treaty a relic of the Cold War, and President Putin thereafter proposed in October 2007 that the INF Treaty become multilateral—a global ban on INF missiles.

Now, the political-military relationship between Russia and China is vastly different today. China’s nuclear capability has dramatically improved, especially with submarine-launched ballistic missiles. On the other hand, US’ relations with both Russia and China have become tense while Sino-Russian partnership is at its highest level today in history. Equally, Russia and China have common shared threat perceptions regarding the US.

Since there are consultative mechanisms between Moscow and Beijing to mitigate substantive concerns regarding deployment or force projection, China is today more concerned with US missiles (and missile defence systems.) Nonetheless, China has to come to terms with the reality that any significant increase in its nuclear warhead numbers henceforth also concerns the security interests of Russia. It is entirely conceivable that Moscow will also strive to maintain its qualitative and quantitative nuclear predominance over China.

To be sure, China’s rapidly growing missile forces have long troubled the US. China now has the second largest defense budget behind the US – and China’s fire power is largely concentrated in one critical region, East Asia. The trends are worrisome for Washington, too. If in 2000 US defence expenditure was nine times that of China, by 2010, this was down to less than six times, and in 2017 to less than three times.

Russian officials have repeatedly stated that any future reductions of strategic weapons would have to be multilateral, including the UK, France, and China. Chinese officials have stated that the US and Russia would have to make much deeper cuts before China is prepared to join the process. However, we still don’t know the US position apropos extension of New START Treaty beyond 2021 and in further nuclear reductions.

May 5, 2019 Posted by | Militarism | , , | Leave a comment

US ends waiver on India’s Iran oil imports. What next?

By M. K. BHADRAKUMAR | Indian Punchline | May 3, 2019

China’s stance vis-a-vis the US sanctions against Iran’s oil exports is evolving. These are early days. Quite obviously, the Chinese assessment that Iran is not going to wilt under US pressure gives a realistic picture. But it means that there is a long haul ahead and India needs to do some creative thinking. In the improved climate of Sino-Indian relations, a window of opportunity is opening for New Delhi to take a coordinated approach with Beijing.

No sooner than the Trump administration announced in a statement on April 22 its decision that it will not extend the exemption period beyond May 2 for countries buying oil from Iran — so-called “waiver” — the Chinese Communist Party tabloid Global Times came out with an editorial acknowledging that the US decision poses a “tough choice.”

China is the biggest importer of Iranian oil. The Global Times editorial blasted Washington for this “typical manifestation of unilateralism and hegemony” and weighed in on China’s policy options. The editorial offered the following advice: “We think China should clarify its interests and principles surrounding the purchase of oil from the Middle East nation and strive to minimize the loss to China’s national interests.”

That is to say, first, China should no doubt “oppose the hegemonic approach of the US but it can’t take the lead in confronting the US on issues involving Iran.” China will push back at the US by rallying world opinion against its Iran sanctions, but will not take a confrontationist approach.

Second, “Beijing needs to coordinate with other major powers to respond to US sanctions against Iran… There is a need to strengthen coordination among countries. If the issue can be dragged, then let it drag. Otherwise, the issue can be modified. If it cannot be modified, let it be dealt with on a case-by-case basis.”

Third, “The operational safety of Chinese enterprises should be given priority and they have the right to continue to cooperate with Iran or withdraw, keeping in mind the situation on the ground.” The editorial sums up: “China does not want to have a showdown with the US over Iran, nor can Beijing just let Washington do what it wants… we cannot disregard principles or interests. This is a time to test wisdom.”

However, an editorial by the government-owned China Daily on April 23 was more forthright: “Major importers of Iranian oil, China included, have the legitimate right to have normal business ties and conduct trade with Iran, including importing oil from it, should they so choose. The Chinese government is committed to safeguarding the legitimate rights and interests of its enterprises and willing to play an active and constructive role in promoting the stability of the international energy market.”

Significantly, China Daily also hinted at willingness to make coordinated moves with other affected countries such as India.

China has skirted US sanctions against Iran before. This time around too, the likelihood of that happening is being discussed by western analysts. China will find the back door, inevitably. Apart from ship-to-ship transfers of oil, China also has the option to continue to buy some Iranian crude through the banks in China that are already under US sanctions.

The US-China trade talks do not complicate Beijing’s policy calculus on Iran oil. The trade negotiations envisage US exports of oil / LNG to China worth tens of billions of dollars. (The Wall Street Journal reported in March that in a move that would be announced as part of a broader US-China trade deal, China’s state-owned China Petroleum & Chemical Corp., known as Sinopec, will agree to a long-term contract to buy about $18 billion of liquefied natural gas from Cheniere,) This eases the US pressure on China.

On the contrary, the pressure is much higher on India, which meets 80% of its oil demand through imports. Iran used to be the third largest source of supply till the US butted in. The “waiver” allowed India to import 1.25 million tonnes of oil from Iran per month (which itself meant a 30% reduction in the level of imports).

Most important, India could avail of concessional terms, which meant a saving of around a quarter of combined costs due to favourable conditions such as prices, transportation and insurance. Equally, the rupee payment mechanism worked to India’s advantage.

India has to pay Iran in rupees for oil imports and money is deposited in a special account in India, which Iran uses to purchase humanitarian supplies such as rice and medicines from India. In essence, it was barter trade that committed Iran to buy Indian products, creating export earnings for Indian business.

President Trump is notoriously tight-fisted and will never compensate India for all this financial loss. On the other hand, he hopes to take the opportunity to expand US oil exports to India, which are not based on attractive trade terms. (Besides, why should India want Trump to navigate its energy security?)

Suffice to say, with the expiry of the “waiver” on May 2, India’s oil import costs (and its US dollar payouts) will rise, and its export revenue will decrease. India’s economic growth and exchange rate’s stability will come under great pressure. The expert opinion uniformly warns that the US sanctions against Iran will push up international oil prices, thereby increasing India’s overall oil import bills. Washington claims to be generous in leaving India-Iran cooperation over Chabahar port out of the purview of the sanctions. But the US sanctions will in due course severely stymie cooperation between India and Iran over Chabahar.

The question must be frontally asked: What are the US’ intentions toward India? New Delhi has reason to be worried about Washington’s real interests, long-term strategy and the uncertainty in ties with the US. The US’ interests and strategy appear to narrow down to using India to contain China.

Mike Pompeo has rushed to claim credit for the blacklisting by the UN of Masood Azhar. Sections of the Indian media are beside themselves with joy. But the same man went into hiding a couple of weeks ago when EAM Sushma Swaraj telephoned him in Washington seeking flexibility in the US sanctions against Iran oil.

According to media reports, EAM said India should be allowed to import Iranian crude for some more time without being impacted by US secondary sanctions, as the general election is underway in the country, and that the next government with a fresh mandate will take a final call on this issue.

But Pompeo ducked, pleading helplessness — only to resurface from hiding ten days later on May 1 with the astounding claim that his boys got China to lift the block on Azhar. What to make out of such friends?

Unfortunately, the government is waffling by claiming it is ready to deal with the impact of US sanctions against Iran by getting extra supplies from other oil producing countries to compensate for loss of Iranian oil. The matrix is not about the availability of oil — as explained above — but about the huge economic costs. Simply put, India is called upon to underwrite Trump’s maverick Iran policies.

From the Indian perspective, what matters most in the coming period will be the scope to create a trading bloc with China that would allow the two countries to buy Iranian oil without going through the US banking sector.

May 3, 2019 Posted by | Aletho News | , , , | Leave a comment

Trump’s Arms Proposal Is Really All About The Space Race

By Andrew Korybko | EurasiaFuture | 2019-04-26

There’s nothing that anyone can argue about in principle concerning the spirit behind Trump’s arms proposal, but peel back a few strategic layers and it becomes clear that it’s really all about the Space Race and weakening the Russian-Chinese Strategic Partnership.

Trump’s arms proposal is making waves all across the world after officials in his administration told the media that “he thinks that arms control should include Russia and China and should include all the weapons, all the warheads, all the missiles”, suggesting a comprehensive global military pact that could in theory change the course of International Relations in the 21st century. On the surface, there’s nothing that anyone can argue about in principle concerning the spirit behind this idea, but peel back a few strategic layers and it becomes clear that it’s really all about the Space Race and weakening the Russian-Chinese Strategic Partnership.

The US evidently believes that its much-touted “Space Force” gives it a noticeable edge over its competitors and will eventually neutralize Earth-based weapons platforms, something that Russia already suspects is the case after First Deputy Chief of the Russian General Staff’s Main Operations Department Lt. Gen.Viktor Poznikhir told the Moscow Conference on International Security (MCIS) earlier this week that “the US had developed a concept of pre-launch interception and planned to destroy intercontinental ballistic missiles of Russia, China and other countries while they are still in launchers”, strongly hinting at its strategic adversary’s impressive space-based military capabilities.

It’s likely for this reason why Deputy Foreign Minister Sergey Ryabkov cautiously welcomed this proposal but qualified his country’s support for it by saying that “further steps towards nuclear disarmament will require creating a number of prerequisites and taking into account many factors that have a direct impact on strategic stability – from the emergence of a missile defense system and the possibility of weapons deployment in space to fundamental changes in the sphere of conventional weapons, the emergence of cyber weapons and many other factors.” Evidently, Russia senses a trap, and not without good reason.

Trump knows that his proposal is misleading but will probably generate a lot of positive coverage in the global press, which not only boosts his re-election prospects next year but also improves the US’ international image to an extent. In addition, his strategists are aware that the proposal is more attractive to Russia than it is to China, which experts interviewed by CNN about this noted when they described the People’s Republic as not “even in the same ballpark” with those other two Great Powers and “not even playing the same game” when it comes to the weapons that Washington wants to limit.

Knowing that his proposal will probably flounder, Trump likely intends to use it for short-term soft power purposes and to exploit its likely failure as the long-term pretext for doubling down on the US’ military-industrial complex and specifically its missile defense and space-based component that will greatly offset the strategic stability that relatively stabilized International Relations up until this point. In the event that Russia plays along with the US for appearance’s sake in entering into some degree of negotiations about this topic while China predictably stays away, then Washington might seek to exploit this divergence between its two Great Power rivals in order to divide them further.

That, however, will probably only be as successful as Trump’s arms proposal (which is to say, that it’ll likely also fail) because President Putin just proudly proclaimed that Russia and China’s supercontinental integrational projects of the Eurasian Economic Union and the Belt & Road Initiative (BRI) will begin the process of merging into a multipolar megastructure during the speech that he gave at the ongoing BRI Forum in Beijing. Despite the occasional differences between these two strategic partners and their underwhelming real-sector economic cooperation so far, neither of them wants the US to get its way in dividing and ruling Eurasia at their expense.

April 26, 2019 Posted by | Deception, Militarism | , , | Leave a comment

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