Iran joined the Shanghai Cooperation, and the internationalization of the renminbi accelerated. Borrell's visit to China cancelled, has the China-EU exchange and dialogue changed? China's export control of gallium and germanium, the follow-up effect continues to ferment, the Netherlands urges the EU to respond, will the rare metal dispute continue to heat up?
Iran joined the Shanghai Cooperation, and the internationalization of the RMB accelerated
In the last video, we mentioned that due to a series of reasons such as the EU planning to confiscate the assets of the Russian Central Bank, the internationalization of the RMB may accelerate and is even expected to become a common currency within the SCO. This judgement is partially confirmed today. According to Russian satellite network reports, on July 4, the SCO online summit hosted by India issued the "New Delhi Declaration", which includes supporting member states to implement the roadmap for expanding the share of local currency settlement, strengthening cooperation in the financial and investment fields, and supporting continued assistance to the Afghan people.
Russia's attitude towards the internationalization of the renminbi is generally positive. Putin said at the summit that trade and economic cooperation between Russia and China is expanding, and at present, more than 80% of trade between Russia and China is settled by rubles and yuan. According to the report, in 2022, the total trade between China and Russia reached a record $190.271 billion, a year-on-year increase of 29.3%, and China has been Russia's largest trading partner for 13 consecutive years. Since the beginning of this year, the trade volume between China and Russia has continued to climb to a new high, and the scale of imports and exports has increased at a double-digit rate.
The report pointed out that since China and Russia established a local currency settlement mechanism, although Russia has reduced its dependence on the US dollar, because the internationalization of the RMB is not enough, Russia still has a considerable amount of RMB in its hands. Previously, the Central Bank of Russia issued a warning that the renminbi is not freely convertible, and there is a lack of hedging tools, and there are risks in using a large number of yuan for trade settlement. Over the past year, Russia has sold $4.5 billion worth of renminbi and reduced its holdings by a third of its renminbi reserves.
Some analysts believe that whether it is the recent depreciation of the RMB or Russia's sell-off, in fact, it is only a normal phenomenon in the early stage of RMB internationalization, and as more and more countries accept the RMB, exchange rate fluctuations caused by the selling of a few countries will eventually gradually decrease.
For example, Argentina has recently begun to use the IMF Special Drawing Rights and RMB settlement to repay $2.7 billion of foreign debt to the IMF, which is also the first time Argentina has used RMB to repay external debt. On June 26, Argentina also approved the issuance of securities products denominated in yuan. In addition, Indian refineries have also started using yuan to pay for oil imports from Russia.
Oil-producing countries supported the renminbi, and the dollar ushered in a fierce rival
Some US media pointed out that the US dollar has always been the main currency of global oil transactions, including crude oil purchased by India, which is usually settled in US dollars. But when Russia was kicked out of the European and American financial systems, the renminbi gradually became the main bridge for Russian oil trade, and the scope of use of the yuan, along with Russia's energy influence, continued to expand to developing countries. The US media believes that this scenario is very similar to the process of establishing the "oil-dollar" system in the United States. At that time, the reason why the US dollar could replace the pound sterling and become the world currency. In addition to factors such as the United States eating the dividends of World War II, the main reason is that Saudi Arabia took the lead in accepting the dollar, binding the dollar to oil, forcing the world to hoard dollars. Now, the renminbi seems to be copying that path.
In fact, the role of the renminbi in international trade settlement is becoming increasingly important and has received great attention from SCO member states. At the summit held on the 4th, the leaders of Kyrgyzstan and Kazakhstan both mentioned the proposal to establish the SCO Development Bank and expand mutual settlement of local currencies. These suggestions also echo China's proposition. In addition, Iran, a new member of the SCO, has called on all countries to abandon the use of the dollar, believing that only by eliminating the hegemony of the dollar can a fair international system be established.
Some people have pointed out that in the process of RMB internationalization, support from energy exporting countries is very important. Not only Russia is increasingly using RMB settlement in oil trade, but Central Asian oil producers have also expressed their intention to expand local currency settlement. In the future, the scope and influence of RMB will be further expanded.
Compared with the strong atmosphere of cooperation within the SCO, a global quarrel and game around rare metals is heating up.
China controls gallium germanium exports, and Japan and South Korea begin to tense
Japan and South Korea have begun to feel nervous about China's announcement of gallium germanium export control measures. According to Yonhap News Agency, on July 4, Zhu Yongjun, director of the Industrial Policy Office of the Ministry of Industry, Trade and Energy of South Korea, urgently chaired an industrial supply chain inspection meeting at the Korean Chamber of Commerce and Industry on the same day to discuss the impact of China's export controls on gallium and germanium on the domestic supply chain. Zhu Yongjun said that the short-term impact of the measure on the supply and demand pattern is expected to be limited, but it is not clear how long the relevant measures will last and the restricted export items may be further expanded, and the government will closely check the relevant trends and take rapid countermeasures.
At the same time, Japanese Minister of Economy, Trade and Industry, Yasuminoru Nishimura, also said that he would confirm China's intention and application policy, and that "if unfair measures are taken against Japan according to WTO rules, Japan will take corresponding measures in accordance with WTO rules." Some Japanese media mentioned that on March 31, Japan strengthened export controls on 23 kinds of high-performance semiconductor manufacturing equipment, and included 42 "friendly countries and regions" such as the United States and South Korea in the simplified review list, but it did not include China, which was equivalent to implementing export controls relative to China. The report believes that the gallium germanium export control measures introduced by China this time may be a countermeasure to Japan.
Not only Japan and South Korea, but also the United States and Europe have expressed concern about China's export controls. The "Foreign Policy" website recently published an article pointed out that China began to fully develop the rare earth industry in the 1980s, although the United States was once the leader of the rare earth industry, but now like the rest of the world, it is left behind by China, although the United States has been trying to catch up, but so far with little success. According to the World Bank, China supplies nearly 90% of the world's processed rare earth elements. Although these minerals are found all over the world, only China has the ability to refine and process them. Without lithium, cobalt, nickel and titanium supplied by China, there would be no electric cars in the world and no jet engines. In May, White House senior adviser to Clean Energy Podesta warned that China could use its control of supply chains to hold the U.S. government hostage politically.
The United States and Europe are worried about "cutting off supply", and Borrell's visit to China is canceled
China's export controls on gallium and germanium have also raised questions from the EU, believing that these export restrictions have nothing to do with the need to maintain global peace and stability, nor China's non-proliferation obligations under international treaties, and hopes that China will abide by WTO regulations and limit export controls to clear security considerations. The Dutch Foreign Ministry said the EU must respond to China's new rules restricting exports of gallium and germanium. EU think tank Bruegel previously released a report that 71% of the gallium used in the EU is imported from China, and 45% of germanium is imported from China. It is a harsh reality that the West will not be able to get rid of this dependence for at least a decade.
In another news to watch, EU spokeswoman Nabila Maslali said on Tuesday that China canceled the visit of EU foreign policy chief Borrell scheduled for next week without giving any reason. Reuters noted that this is the second time since this year that Borrell has cancelled his visit to China. The last time was in April, when Borrell was forced to cancel a visit to China due to a positive coronavirus test. But at the time, many people believed that the real reason why Borrell failed to visit China was actually his controversial remarks against China, saying that if China did not seek peace in Ukraine, the EU could not trust China. Borrell's visit to China was cancelled again, and an EU spokesman made it clear that it was China who cancelled the visit. At present, China has not given a reason for refusing Borrell's visit to China, and we have no way of knowing what happened behind it, but at least for the EU, the news is quite unexpected.
Because just last Sunday, the European Union's ambassador to China, Jorge Toledo, said that Borrell would visit Beijing on July 10 to meet with Chinese Foreign Minister Qin Gang to discuss "strategic issues" including human rights and Russia's geopolitical conflict. The Bloomberg report pointed out that the background of Borrell's visit to China is that the United States has implemented a series of export control measures to China in order to limit China's access to advanced technology. China is trying to persuade Europe to take a softer stance than the United States, while the EU wants to figure out how to manage competition with China.
Judging from the EU's current attitude towards China and the atmosphere of Sino-EU exchanges, the relationship between the two sides is not very harmonious, but it is not too tense. At the EU summit that ended on Friday, although it formally established the guidelines of "de-risking" in its strategy towards China, it also clearly opposed decoupling from China and supported the continuation of economic and trade relations with China. In a joint statement signed by EU leaders after the meeting, it was stressed that the EU and China will continue to be important economic and trading partners, and that although the two sides have different political and economic systems, both EU and China are interested in promoting the development of constructive and stable relations. The EU will continue to cooperate with China to address global challenges.
Therefore, whether there are some unknown reasons for the temporary cancellation of EU foreign policy chief Borrell's visit to China, we need to continue to observe.
Notably, EU Ambassador to China Jorge Toledo also mentioned on Sunday that China and Europe could hold two face-to-face dialogues in September, one on economy and trade and the other on numbers, before holding a leaders' summit at the end of the year. It is an important indicator to judge whether China-EU exchanges can proceed smoothly and whether these dialogue agendas will change in the future.