SinoInsight 1
On May 11, China Baowu Group, the largest state-owned iron and steel company in China, announced that it had successfully concluded a blockchain-supported yuan-denominated purchase (nearly 100 million yuan) with Australia’s Rio Tinto Group. Baowu’s blockchain technology is a type of digital letter of credit being circulated in specific industries, and is not an actual cryptocurrency.
“The active promotion of renminbi settlement in iron ore transactions is not only for operational needs, but also in line with the trend of yuan internationalization,” Baowu said in a statement. In January and April this year, Baowu had completed yuan-denominated transactions with Brazil’s Vale SA and Australia’s BHP Group.
On May 13, the Shanghai branch of the People’s Bank of China stated on its website that some commodity suppliers whose main market is China can consider settling their transactions in renminbi.
OUR TAKE
1. The CCP’s latest blockchain and RMB internationalization push are almost certainly geared towards helping it survive the coronavirus pandemic and dominate the post-pandemic world.
As part of stimulus measures to revive the coronavirus-wrecked economy, the CCP is revisiting its “infrastructure-building” playbook from the 2008-2009 economic crisis to spend its way out of trouble and mitigate unemployment woes. Since the outbreak of the coronavirus, China’s 31 provinces have announced infrastructure building (including so-called “new infrastructure,” or 5G, artificial intelligence, data centers, etc.) and projects exceeding 40 trillion yuan in total value.
Infrastructure building requires commodities, and the CCP is taking the opportunity to push RMB internationalization and its blockchain technology as it makes transactions in the commodity markets. Meanwhile, commodity suppliers will be more inclined to make yuan-denominated transactions and embrace the CCP’s blockchain technology since there is a demand for commodities in China and the global economy is stalling.
2. The CCP likely plans to start small with relatively “primitive” blockchain technology and yuan-denominated transactions in the commodity markets before expanding such transactions to other industries and eventually rolling out cryptocurrencies. Per the CCP’s world domination agenda, its eventual goal would be to displace the U.S. dollar with the yuan or alternative currencies for global financial settlements.
The CCP, however, will find it much more difficult to advance its domination agenda in the pandemic and post-pandemic world as the U.S. hardens its stance towards the PRC (see SinoInsight 2).
SinoInsight 2
The U.S. has been stepping up efforts to counter and call out the CCP regime across the board in recent days:
May 11
- When asked to comment on calls in the PRC to renegotiate the Sino-U.S. “phase one” trade deal, U.S. President Donald Trump said, “I’m not interested. We signed a deal. I had heard that too, they’d like to reopen the trade talk, to make it a better deal for them.”
May 12
- President Trump tweeted: “Asian Americans are VERY angry at what China has done to our Country, and the World. Chinese Americans are the most angry of all. I don’t blame them!”
- U.S. National Security Advisor Robert O’Brien told reporters at the White House, “We’ve had five plagues from China in the last 20 years … at some point, it’s got to stop.” O’Brien added that the U.S. is “prepared to help China deal with the public health crises so we don’t face this issue again.”
- Republican Senator Lindsey Graham introduced the COVID-19 Accountability Act, a bill that would require the president to provide to Congress within 60 days a “full and complete accounting to any COVID-19 investigation led by the United States, its allies or U.N. affiliate such as the World Health Organization.”
- The U.S. Navy sent three naval ships on patrol near oil-and-gas operations off Malaysia’s coast. In recent weeks, the PRC survey vessel Haiyang Dizhi 8 and its escort coast-guard ships and fishing-militia boats had stepped up activity in the region where the Malaysian vessel West Capella was operating.
May 13
- President Trump tweeted: “As I have said for a long time, dealing with China is a very expensive thing to do. We just made a great Trade Deal, the ink was barely dry, and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference – and all those innocent lives lost!”
- Trump extended by another year an executive order signed in May 2019 that prevented U.S. companies from using telecommunications equipment from firms deemed a national security threat, including the PRC’s Huawei and ZTE.
- The Federal Bureau of Investigation and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency warned that PRC hackers are targeting U.S. colleges, pharmaceutical, and other health-care companies in an attempt to steal intellectual property related to coronavirus vaccines and treatment. The agencies also warned that PRC activity could jeopardize progress on medical research.
- The Federal Retirement Thrift Investment Board said that it would postpone a change in the composition of its international portfolio that would see the investment of government employees’ money into Chinese companies. The Trump administration said that such a move would threaten the U.S. national interest. According to The Financial Times, U.S. National Security Advisor Robert O’Brien and White House economic advisor Larry Kudlow had sent a letter to the Board warning against investing in Chinese companies because there was a “possibility that future sanctions will result from the culpable actions of the Chinese government with respect to the global spread of the Covid-19 pandemic.”
- Sam Brownback, the U.S. Ambassador at Large for International Religious Freedom, tweeted: “On World Falun Dafa Day, we strive to uphold the universal tenets of truthfulness, compassion, & forbearance, ideals that are fundamental to the expression of the Falun Gong faith and we reiterate that no one should be persecuted for their beliefs, including Falun Gong in China.”
May 14
- In an interview with Fox Business News, President Trump said when asked about China, “We could cut off the whole relationship … Now, if you did, what would happen? You’d save $500 billion if you cut off the whole relationship.” Trump also said that he was looking “very strongly” at making Chinese companies follow the same accounting rules to be listed on the New York Stock Exchange. When asked about his relationship with PRC leader Xi Jinping, Trump said, “I have a very good relationship, but right now I just don’t want to speak to him.”
- The USS McCampbell guided-missile destroyer sailed through the Taiwan Strait, the sixth such passage by a U.S. Navy vessel in 2020.
Meanwhile, the PRC continued to send mixed signals about its attitude towards the United States:
- On May 11, the Global Times published an article about increasing calls in China to renegotiate the Sino-U.S. “phase one” trade deal. The following day, Reuters cited PRC officials that are familiar with the trade situation as saying that the PRC is committed to and working towards fulfilling the trade deal despite limitations caused by the coronavirus pandemic.
- On May 12, the PRC Ministry of Finance announced that China will remove additional tariffs imposed on U.S. goods in August 2019. The 79 items include rare-earth metal ore, silver ore, and enriched ore.
- On May 13, the Global Times said that the PRC should consider taking retaliatory action against U.S. lawmakers who filed lawsuits against China over the coronavirus outbreak. When asked about this the next day, PRC foreign ministry spokesman Zhao Lijian lectured the U.S. about how it should instead focus on handling the coronavirus back home and collaborate with international bodies on the pandemic before saying, “I’ve nothing further to add.”
- PRC foreign ministry spokespersons mostly refrained from directly naming U.S. officials or politicians in their comments, preferring instead to use the term “U.S. politicians.” Criticisms were also limited to condemning “U.S. politicians” of “repeating lies,” using “malicious language,” and attempting to “shift blame and smear” the PRC. This represented a step back for the CCP regime as PRC diplomats and media outlets had only very recently been targeting U.S. Secretary of State Mike Pompeo for harsh condemnation.
- According to a May 13 South China Morning Post report, the People’s Liberation Army Navy is commencing an 11-week exercise in the Yellow Sea, mainly to test the new Shandong aircraft carrier. According to news reports, the PLA is also planning to carry out a large-scale landing drill off Hainan Island in the South China Sea in August to simulate a possible assault of Taiwan’s Pratas Island.
OUR TAKE
1. We explained in the previous edition of this newsletter the role of ideology in the CCP’s recent mixed or “contradictory” messaging with regard to Sino-U.S. issues. Ideology aside, the CCP’s mixed messaging is also part of its strategy to survive and dominate—during the CCP-Kuomintang peace negotiations after the Second World War, Mao Zedong was publicly saying “Long live Chiang Kai-shek!” while the CCP’s Red Army seized opportunities to assault KMT forces.
We believe that the U.S. will unlikely be swayed by the CCP’s more “moderate” messaging. The coronavirus outbreak has led to increased skepticism and hardening of attitudes towards the PRC across the political spectrum in the United States. Also, the Trump administration, with three years of first-hand experience negotiating with the PRC, could view the contradictory signals as evidence that the CCP regime is again up to no good. A further escalation of Sino-U.S. tensions is just around the corner if the Trump administration deems that the CCP regime is not yet prepared to become a “member of civilized society,” in the recent words of U.S. Secretary of State Mike Pompeo.
2. President Trump’s recent tough comments and actions on China do not bode well for the “phase one” trade deal. There is a good chance that Trump cancels the trade deal because, 1) the PRC simply cannot fulfill its trade deal commitments even if it wants to due to the impact of the epidemic, 2) getting tough on China will be the central issue for the 2020 U.S. presidential election (the Biden campaign is looking to attack Trump for talking tough but taking weak action on China), 3) the Trump administration could have realized that a window of opportunity has opened up to strongly counter the CCP’s push for regional and global domination, 4) the coronavirus has opened up a window of opportunity to effect regime change in China.
There is also a chance that Trump’s recent rhetoric and actions on China are another “bluff” to frighten the CCP into complying with the “phase one” deal. However, we believe that the chances of Trump bluffing this time are slim due to the domestic damage wrecked by the “CCP virus” and the upcoming presidential election.
Going forward, the Trump administration will likely strengthen U.S. efforts across the board to counter the CCP regime, including pushing back against CCP propaganda and disinformation, stepping up military pressure in the South China Sea and East China Sea, boosting Taiwan’s international status and strengthening U.S.-Taiwan relations, and calling for an international investigation into the origins of the Wuhan coronavirus.
3. Last year, we looked at why the CCP would consider the U.S. playing the human rights card, and particularly calling attention to the Falun Gong issue, as America preparing to go “nuclear” on the CCP regime (see here and here). We believe that it is likely that the CCP will read Ambassador Brownback’s tweet commemorating World Falun Dafa Day together with the recent hawkish moves by the Trump administration and conclude that the U.S. is either “seeking powerful leverage” to force the PRC to fulfill the trade deal or is “finally moving to end communist rule of China.” Either way, by playing the human rights card at a crucial moment in Sino-U.S. relations, the Trump administration is creating favorable conditions for the emergence of Black Swan events in China.
