my take... the same week Xi Jinping visits Johannesburg for an Africa
conference, sigh...
http://www.counterpunch.org/2015/11/27/china-sucked-deeper-into-world-financial-vortex-and-vice-versa-as-brics-sink-fast/
November 27, 2015
*China Sucked Deeper Into World Financial Vortex and Vice Versa, as
BRICS Sink Fast
<http://www.counterpunch.org/2015/11/27/china-sucked-deeper-into-world-financial-vortex-and-vice-versa-as-brics-sink-fast/>*
by Patrick Bond <http://www.counterpunch.org/author/patrick-bond/>
On Monday November 30, the Chinese currency – the yuan – will join the
dollar, euro, pound and yen as the world’s official reserve currencies,
as recommended
<http://www.bloomberg.com/news/articles/2015-11-13/imf-staff-recommend-yuan-be-included-in-reserve-currency-basket>
by the International Monetary Fund (IMF). Are we reaching the fabled new
era of multipolarity, and will it bring stability to a chaotic world
economy – “a win-win result for China and the world,” as the People’s
Bank of China claims
<http://www.gulfbase.com/news/yuan-poised-to-be-a-global-currency-says-imf-s-christine-lagarde/284762>?
Or instead, will this herald
<http://ccs.ukzn.ac.za/default.asp?11,65,3,3602> the amplification of
extreme uneven development, worsening financial crises, and the abuse of
Chinese economic surpluses, yet again, for the purpose of bailing out
the corrupt, fragile world financial institutions and their elites?
In that optimistic People’s Bank statement, I take the name “China” to
mean the neoliberal clique at the helm of Beijing’s economic management
and Shanghai’s financial institutions, and the “world” to mean a very
shaky capitalist system suffering periodic spasms in its
hyper-speculative financial centers.
Since Wall Street’s crash of 1987, these centres have enjoyed Washington
backstops (the Federal Reserve Board and Treasury) that have themselves
been the lucky beneficiary of Chinese purchases of US Treasury Bills.
Reaching the sum of $1.3 trillion in late 2013, that process has finally
reversed
<http://money.cnn.com/2015/09/10/investing/china-dumping-us-debt/>, with
about $100 billion in net T-Bill sales
<http://www.bloomberg.com/news/articles/2015-11-17/china-s-holdings-of-u-s-treasuries-drop-to-seven-month-low#media-1>
by China since then.
But Beijing still holds about a third of its total foreign reserves in
these investments, representing more than a fifth of all foreign US
T-Bill holdings. In turn, the $6 trillion in US T-Bills is about a third
of total US foreign indebtedness.
China is joined at the hip with Washington’s maniacal, money-printing
Fed and
Treasury. Its elites need US borrowing power to translate to US
consuming power to translate to Chinese exports; that relationship
appears to important to jettison.
Moreover, Beijing is mindful of homegrown economic problems, including
its own vast overindebtedness, the secondary cities’ real estate
meltdown and the $3.5 trillion collapse of the main stock markets
mid-year. If London bankers are
<http://www.bloomberg.com/news/articles/2015-11-13/imf-staff-recommend-yuan-be-included-in-reserve-currency-basket>
correct, then as the IMF welcomes the yuan to world-bourgeois
respectability, an additional $1 trillion of global reserves could move
into Chinese financial assets.
That inflow would negate Beijing’s August 2015 2% currency devaluation
and make the whole system more balanced at surface level (since there is
currently so little yuan trade outside Hong Kong), yet far more chaotic
underneath as a result of international contagion from a future Chinese
debt crisis or from world finance meltdowns finally affecting China.
Meantime, China will probably bolster the IMF’s own loan-pushing in its
new self-interested currency partnership.
Is there an alternative strategy: an opting-out of the financial death
grip between China and the West? And for the other BRICS, is there a way
to support the Bank of the South founded by Hugo Chavez (which without
Brazil’s support appears stillborn), or to default on ‘Odious Debt’ (as
did Ecuador in 2009), or to impose tough exchange controls (as did
Malaysia to halt capital flight in 1998), or to insist that state
regulators get control of local financiers rather than the other way around?
Aside from Russia (facing partial Western financial sanctions), the
answer is no, thanks to the BRICS’ neoliberal decision-making officials
now in power. To illustrate, at its founding, the BRICS Contingent
Reserve Arrangement (CRA) was designed
<http://www.postwesternworld.com/2014/07/21/brics-seek-undermine/> so
the IMF gets ever stronger, the more quickly and desperately BRICS
borrowers need a bail-out loan. The CRA articles of agreement compel the
borrower to visit Washington for an IMF structural adjustment loan after
drawing down just 30% of their quota in the supposedly ‘alternative’
institutions.
Just after the BRICS CRA became operational in late September, Barack
Obama’s statement
<https://www.whitehouse.gov/the-press-office/2015/09/25/fact-sheet-us-china-economic-relations>
during Chinese leader Xi Jinping’s visit confirmed the game in play:
“China has a strong stake in the maintenance and further strengthening
and modernization of global financial institutions, and the United
States welcomes China’s growing contributions to financing development
and infrastructure in Asia and beyond.”
To be sure, Obama was outmanoeuvred on this front earlier in the year –
when Beijing’s Asian Infrastructure Investment Bank received European
and Bretton Woods Institutions’ support against his wishes – and so in
appeasement mode, he told his guest, “The United States commits to
implement the 2010 IMF quota and governance reforms as soon as possible
and reaffirms that the distribution of quotas should continue to shift
toward dynamic emerging markets and developing countries.”
He may break that promise, because Republican members of the US Congress
have for five years blocked the quota voting reform, due to their worry
about declining power at the IMF, even with minimal shrinkage (from 17%
to 16.5% of voting shares). It’s a typical silly rightwing-populist
ruse, for Obama has protected the US veto by not letting his delegate’s
voting quota fall below 15%.
The argument for IMF vote rejigging comes mainly from the countries that
gain <https://www.imf.org/external/np/sec/pr/2011/pdfs/quota_tbl.pdf>
votes once the 2010 deal is implemented: China +37%, Brazil +23%, India
+11%, and Russia +8%. (South Africa loses out, as Pretoria’s share would
fall 21% under the 2010 terms.)
Which countries, then, lose
<https://www.imf.org/external/np/sec/pr/2011/pdfs/quota_tbl.pdf> the
most IMF voting power if the 2010 deal is implemented? Amongst them are
these Southern countries: Nigeria -41%, Venezuela -41%, Sri Lanka -34%,
Uruguay -32%, Argentina -31%, Jamaica -31%, Morocco -27%, Gabon -26%,
Algeria -26%, Bolivia -26% and Namibia -26%. So much for the BRICS’
South-South solidarity.
In return, said Obama, “The United States supports China’s presidency of
the G-20 in 2016.” After all, Beijing will also “promote international
trade and investment as engines of global growth,” even if left out of
Obama’s trade deals.
In reality, China stands poised to be the engine of global /crisis/.
Though he is not
<http://www.theatlantic.com/magazine/archive/1981/12/the-education-of-david-stockman/305760/>
always trustworthy, the Ronald Reagan regime’s former Budget Director
and subsequent Wall Street financier, David Stockman, is scathing
<http://davidstockmanscontracorner.com/why-chinas-market-isnt-fixed-and-the-global-bubble-will-keep-imploding/comment-page-2/>
about China’s governing elites: “In the process of taking its debt from
$2 trillion in the year 2000 to $28 trillion at present, in fact, China
has erected an endless string of uneconomic public facilities
and industrial white elephants that boggle the mind. For instance,
it has 1.1 billion tons of steel capacity: 400-500 million tons more
than its domestic economy will ever be able to use on a sustained,
sell-through basis.”
Here in South Africa, the steel industry is an obvious victim of Chinese
overcapacity, with the recent closure of the second biggest firm, Evraz
Highveld (owned by a Russian tycoon) and the shuttering of many
foundries belong to the world’s largest, Arcelor Mittal (owned by an
Indian tycoon). The 10% tariff protection offered the two by the Trade
and Industry Minister (a Communist Party member, Rob Davies) is simply a
flimsy bandage: much needed for flesh-wounds but not much use against
China’s fatal overproduction malady.
For this reason, the world’s most frivolous investors, notorious for fad
acronyms and investor-churning, have just abandoned the BRICS: Goldman
Sachs. On November 8, the bank that brought the world to the edge of the
financial cliff after gaming
<http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405>
US home mortgages and other ‘toxics’, closed
<http://www.bloomberg.com/news/articles/2015-11-08/goldman-s-bric-era-ends-as-fund-closes-after-years-of-losses>
its main BRIC (i.e. minus South Africa) investment fund.
That fund’s peak valuation of $842 million in 2010 was reduced by 88% in
value to $98 million this month. Over the same period, $15 billion was
withdrawn <http://thebricspost.com/brics-face-down-global-instability/>
from the four economies by Goldman Sachs and other frightened investors.
In this chaotic context, the IMF’s assimilation of the yuan helps
prepare world financial markets for the next version of bailouts,
perhaps similar to the 2008-13 Federal Reserve ‘Quantitative Easing’ and
2009-style IMF Special Drawing Rights pump-priming. If in coming months
recessionary winds howl, as expected, it appears the BRICS and
especially China will blow even harder to keep the West’s financial
house of cards /standing/.
They shouldn’t, but the power balance within the BRICS today seems to
dictate a sub-imperialist stance in relation to global finance, instead
of an anti-imperialist one. To illustrate, the two men the Pretoria
regime just deployed
<http://www.counterpunch.org/2015/07/10/brics-bankers-confirm-they-will-undergird-not-undermine-western-financial-decadence/>
to co-direct the BRICS New Development Bank go to Shanghai from
high-paid jobs at, you guessed it, Goldman Sachs-Johannesburg: Leslie
Maasdorp and Tito Mboweni.
To change that power balance here in South Africa, much more pressure is
needed from below:
* more student victories
<http://www.counterpunch.org/2015/10/27/south-african-student-protesters-win-first-big-victory-decolonization-race-and-class-politics-fused-in-epic-battle/>
so as to redistribute the fiscus to where it is needed, probably at next
February’s Budget Speech;
* more demonstrations at SA Reserve Bank branches to lower interest
rates (as implied by the leftist students’ anti-debt protest
<http://mobi.iol.co.za/#%21/article/sa-reserve-bank-must-fall-students-1.1936640>
in Pretoria and the Economic Freedom Fighters’ 50,000-strong march
<https://www.enca.com/south-africa/watch-eff-thousands-march-jse-chamber-mines-and-reserve-bank>
in Johannesburg, both on October 27);
* renewed metalworker trade union demands
<http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13054>
for exchange controls (since the limit on annual expatriation was
loosened from $275,000 to nearly $700,000 this year to the applause of
rich whites); and
* an intensification of society’s critique of bankers’ exploitation
(coming from ordinary citizens who are filing
<http://mg.co.za/article/2015-07-09-victory-for-consumers-as-court-rules-against-salary-deductions>
successful lawsuits against salary-garnishee and debit order abuses).
Those, at least, are hopeful signs that while China shifts the
deck-chairs on the world financial Titanic and while the BRICS sink
fastest into the whirlpool, a few life-preservers are being readied for
the rest of us on the lower decks here in South Africa.
Internationally, other life-rafts are being pumped up or hopefully can
be quickly reinflated: European struggles against austerity, the Occupy
movement and its various residues, debt cancellation advocacy and the
Third World’s thousands of ‘IMF Riots’ over the last third of a century.
Sure, that kind of counter-power has repeatedly risen and then rapidly
shrivelled during the neoliberal era’s contestations against corporate
and banking elites.
So, in your neck of the woods? What preparations are activists and
progressive strategists making for the next 2008-type financial melt?
/A version of this article appeared originally at TeleSUR
<http://www.telesurtv.net/english/opinion/China-Sucked-Deeper-into-World-Financial-Vortex-as-BRICS-Sink--20151125-0024.html>./
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