The author Wang Wen is the executive dean of the Chongyang Institute of Finance of Chinese Min University and a researcher of the Financial Center of the Counsellor's Office of the State Council
Entering February 2022, the conflict between Russia and Ukraine has almost become the most watched international news. As the Conflict between Russia and Ukraine escalated step by step, the United States announced sanctions against Russia. In particular, on February 26, the measures of the United States, the European Union, the United Kingdom and others to exclude some Russian banks from SWIFT have attracted much attention and discussion, which is known as dropping a "financial nuclear bomb" on Russia. Why?
Founded in 1973, SWIFT is an information service system for cross-border transaction capital flows, that is, to provide more secure, reliable, fast, standardized and automated communication services for the transfer and settlement of cross-border funds between banks. Swift is almost an indispensable tool for cross-border trade, investment, education and more.
The essence of SWIFT is an important infrastructure in the international settlement system, which is a messaging system, not a cross-border payment clearing system. At present, SWIFT connects more than 11,000 banks, securities institutions, market infrastructure and corporate users around the world, covering more than 200 countries and regions, according to statistics, in 2021, an average of 40 million transactions will be conducted through SWIFT every day. SWIFT has played a major role in strengthening standardization, which is the basis for the transmission and automation of financial messages worldwide.
The use of standardized messages and reference data ensures that the information exchanged between institutions is accurate and easy to identify by machines, helping to increase automation, reduce costs and reduce risk. By using SWIFT, banks, custodians, investment institutions, central banks, market infrastructures and corporate customers can connect to each other to complete business processes such as payments or trade settlement.
There are arguments that the United States and Europe have compared Russia's "kicking out" of the SWIFT system to the deletion of new media accounts. This statement is very graphic, but it also shows that there is no need to think too seriously about this matter. Because Russia has already built its own system of liquidation and messaging, Iran has been "kicked out" for decades, and it is still developing, and Europe has left a way back for Russia. According to the news on March 2, the European Union plans to exclude seven Russian banks from the SWIFT system, but does not include Russia's largest banks and major banks that mainly make international payments for oil and gas exports, which is equivalent to no substantive sanctions on Russia.
In other words, you registered a few numbers in the new media, and people delete your trumpet, because the new media also needs a big V, and the big V usually has multiple numbers and other platforms.
Former Russian Finance Minister Kudrin estimates that the kicking out of SWIFT by some Russian banks will reduce Russia's gross domestic product (GDP) by as much as 5 percent. However, the specific list of Russian banks currently under sanctions has not yet been released, but the White House has said it will minimize the impact on energy transactions, in part due to the high dependence of European countries on Russia in terms of energy and Russia's important position in global crude oil trade.
Take Germany, Europe's largest economy, for example, 30% of its oil demand and 65% of its gas demand is provided by Russia, if the Russian banks are kicked out of SWIFT is a "self-severed way", European inflation rate has exceeded 5%, energy shortages have pushed inflation, Europe can not stand stagflation. Therefore, in the short term, Russia's energy trade is unlikely to be affected, but other trades may be affected.
Russia is China's tenth largest importer, and Sino-Russian transactions can be settled in RMB through the banking financial information system (SPFS) established by Russia and the RMB cross-border payment system (CIPS) established by China, so the financial sanctions imposed by the United States and Europe on Russia have limited impact on China, but China should pay attention to the concerns of Europe and the United States about Sino-Russian relations in the context of financial sanctions launched by Europe and the United States against Russia, so as to avoid being affected by sanctions.
The situation in Russia and Ukraine has evolved so far, and its impact on the global economy has become an important topic of concern to the outside world. After Russian President Vladimir Putin decided to launch a special military operation in the Donbass region of eastern Ukraine in the early morning of February 24, global stock markets, including Russia's two major securities trading indexes, the three major US stock index futures indices, the European stock market represented by Britain, France and Germany, the Nikkei index in the Asia-Pacific market and China's A shares, generally fell.
With the evolution of the situation in Russia and Ukraine, the capital market will fluctuate for a period of time, but it will not last long. At present, the stock markets of Russia and Continental countries that have been more affected have fallen significantly, but from the perspective of the impact of regional conflicts on the domestic market in the 21st century, the impact is limited, for example, after the Crimean conflict, A shares even appeared short-term highs. As of the close of trading on March 1, in the domestic A-share market, the Shanghai Composite Index rose 0.77%, the Shenzhen Component Index rose 0.24%, and the ChiNext Index rose 0.16%, all of which rebounded significantly from February 24.
At present, from the information released by the White House, the US non-participation statement also reduces the risk of the market, the US stock market recovery can also reflect market sentiment, the domestic stock market is still mainly affected by the development of enterprises and the domestic economy, but the fluctuations of specific sectors will be affected, such as military stocks, CIPS concept stocks, etc. There are obvious structural bull opportunities.
Another impact of the situation in Russia and Ukraine is reflected in prices, especially in the prices of energy sources such as oil and natural gas and non-ferrous metals, noble gases and agricultural products. As of the evening of March 1, ICE Cloth Oil, one of the world's two largest crude oil pricing benchmarks, rose more than 6%, above $100.
Russia is the world's largest resource country, with a large number of oil and gas resources, rich in barley and other agricultural products, and has a monopoly position in nickel, palladium, platinum and other metals, which can have an important impact on international commodities, non-ferrous metals, semiconductors, new energy and new energy vehicles.
Specifically, Russia is the world's largest wheat exporter, accounting for 17% of global wheat exports; nickel production accounts for 10% of global primary nickel production and 25% of global pure nickel production; Russia's 2021 palladium production is 2.6 million troy ounces, accounting for 40% of global total production, and platinum production is 641,000 ounces, accounting for about 10% of global total production.
Ukraine is the world's fourth-largest exporter of wheat and maize, accounting for 12% and 17% of the world's export share, respectively. In 2021, Ukraine and Russia will produce up to 33 million tons of sunflower seeds, accounting for about 60% of global sunflower seed production. Among them, Ukraine exports sunflower oil accounted for about 50% of the world. Ukraine is also a major supplier of semiconductor raw gases, and according to statistics, in 2020 Ukraine supplied nearly 70% of the world's neon, 40% of krypton and 30% of the world's xenon.
As a producer of oil and gas, agricultural products, non-ferrous metals and rare gases, the situation in Russia and Ukraine will lead to an increase in the price of related products, and the corresponding enterprises need to pay attention to risks, which will also have a certain negative spillover effect on the Chinese economy, driving the prices of corresponding products to rise, but it will not last, but only intermittently. At the same time, though, investment will also gravitate toward safe havens and growth poles like China.
Specifically, trade between Russia and China accounts for less than 3% of China's total foreign trade, so the mainland's trade with Russia is relatively small. In terms of energy, Russia may also increase the weight of energy supply to China under sanctions, and will further promote the development of the mainland's new energy industry.
As the main source of China's corn imports and the source of barley, the conflict between Ukraine and Russia may slightly promote the rise in domestic grain prices and pork prices, so in terms of related varieties, we need to implement a diversified import strategy, appropriately increase imports from other places, and reduce the impact of geopolitical conflicts on domestic prices.