[The Epoch Times, March 25, 2022]It has been a month since Russia invaded Ukraine. This war has left people on the battlefield suffering bloodshed and lost their lives, and people outside the battlefield are also worried. Whether the modern war can end soon and whether a ceasefire can be reached through negotiation is still unknown. What people are particularly worried about is, will the war after the plague, like in the past, cause the world to usher in a food crisis, famine, infectious diseases, economic crisis, and even social crisis? Ukraine is the world‘s second largest grain exporter, and Russia is the world‘s largest fertilizer exporter. The Russian-Ukrainian war has affected spring ploughing. Will the “granary of Europe” fail to harvest this year? Food and fertilizer prices have soared, will they affect the global food supply? For the poor countries of low-income Africa and Southeast Asia, will there be a situation of starvation and death?
For China, is there any whereabouts of the 100 million tons of grain that China needs to import every year? Last year, the CCP imported a large number of staple grains and non-staple grains, and accumulated a large amount of grains. The grain reserves are close to half of the world’s reserves. Is this Zhongnanhai planning ahead, or has it heard some rumors in advance? China’s grain reserves can last for a year, but if grain prices continue to rise a year later, will the CCP still have foreign exchange to buy more reserves? Will “green grass” really become an option? People in the economic and financial circles are also concerned about a more pressing topic: if the CCP is sanctioned by the United States and Europe for supporting Russia with its arms, especially financial and technological sanctions, what will happen and what impact will it have on the Chinese economy? ?
China abstained in a vote at the UN Security Council on a bill condemning Russia, while opposing economic sanctions against Russia. The United States and European NATO countries are currently very concerned about, and also severely warned the CCP, whether the CCP will provide Russia with military equipment support. Because Russia lost a large number of tanks, armored vehicles and other conventional weapons on the Ukrainian battlefield, it urgently needs to supplement its armament facilities, and China’s Russian armament is basically similar and compatible with Russia’s, and the Russian military has no obstacles to using it. Since the start of the war, China’s economic support to Russia has been continuous, and the CCP has been kidnapped by Russia on the chariot. Whether to provide further financial support in foreign exchange hard currency and military support in weapons and armaments is the focus of Sino-Russian relations and the focus of the world‘s attention. And if the CCP dares to take risks and provide Russia with real and substantial support financially and militarily, how will the United States and Europe sanction the CCP?
First of all, China’s economic scale is much larger than that of Russia, and its dependence on the world, the United States and Europe is also far greater than that of Russia. China’s dependence on trade, high technology, sensitive military technology and key components, and the depth of the RMB’s integration into the international financial system are far higher than those of Russia and the Russian currency, which makes China in the face of the United States and Europe When it comes to sanctions, it has to bear far more pressure than Russia. Although Putin has a bad reputation internationally and has been completely smeared by Western mainstream media, Putin’s reputation and support in Russia are still quite high and strong, although many people are reluctant to admit it. In the face of the sanctions imposed on Russia by the international community, the Russian people did not show much rebound, and the Russian market did not overreact to the shortage of European and American luxury goods and imported products. However, once sanctions from Europe and the United States are imposed on China, the grievances and anger of the people under the long-term pressure of the CCP may take the opportunity to erupt. The CCP does not have the strength to unite the hearts of the people at home, and the leader of the CCP does not have Putin-style personal charm. The Chinese people are lacking in Western technology, oil and gasoline. , smartphones, car chips, computer equipment, foreign exchange reserves, and even soybeans and cooking oil, they will not have the same kind of “common hatred” similar to the Russians, but will point their anger at the CCP regime.
The Biden administration has been trying to prevent China from helping Russia dodge Western sanctions. In late March, the White House was preparing to set red lines warning Beijing not to use the business opportunities created by the sanctions to help Russia evade export controls or deal with its banned financial transactions. Biden will discuss deterrence against Russia and “reaffirm our strong commitment to our NATO allies” when he attends a special summit of all 30 NATO leaders. Biden will also attend a pre-scheduled European Council meeting and meet the leaders of the Group of Seven (G7). Obviously, Biden hopes to join forces with European countries to achieve a “continuously coordinated and unified response” to Russia.
Biden and other leaders will also announce a new “package of sanctions” against Russia, including “strengthening existing sanctions. Combating sanctions evasion and ensuring robust law enforcement,” Sullivan, the National Security Adviser, said. This is obviously aimed at the CCP. That is to say, the United States and Europe have specially prepared that if the CCP helps Russia to evade sanctions, they will come prepared to take strong law enforcement measures, and will not let the CCP “attempt to help Russia undermine, weaken or circumvent sanctions.” plan succeeded.
U.S. export-restriction sanctions, which the U.S. takes extra seriously, are designed to block Russia’s access to critical goods such as commercial electronics, computers and aircraft parts. If China helps Russia “backfill” and acquire these products by violating trade restrictions, the U.S. government “has the tools to make sure that doesn’t happen,” according to Sullivan. U.S. Commerce Secretary Gina Raimondo said, “If Chinese companies export semiconductors to Russia made using U.S. technology, the U.S. will ‘absolutely’ impose export controls that could ‘essentially shut down the company’.” In other words, what the CCP may lose quickly is dozens or hundreds of high-tech companies such as ZTE and Huawei.
After Russia was financially sanctioned, the dollar and euro could not be easily used. As a result, Putin said that he would use rubles to pay foreign exchange debts owed to the West. Just when countries thought this was unacceptable and that the rubles they got had no use, Putin’s barrage followed: Putin’s latest statement that Russia will ask countries it deems “unfriendly” to pay for its gas supplies in rubles. That is, Europe must buy Russian oil and gas in rubles. “It is pointless to supply our goods to the EU, the US, and accept payment in dollars, euros and some other currencies.” Putin’s remarks aroused concerns in European countries about the worsening energy shortages in the region. The Russian currency, which has depreciated sharply in recent weeks, briefly appreciated and even returned to its pre-war level at one point!
Saudi Arabia’s decision to price the oil it sells to China in RMB has made many people feel like they have been beaten by chicken blood, believing that the “going global” of the RMB is just around the corner, and that the hegemony of the US dollar is about to “decline.” The currency in which oil is priced is not the most important. Oil can be priced in any currency, it can be priced in gold, or even in rubles. The key is what currency is used to “pay” in oil transactions. If China pays in renminbi, and Saudi Arabia, which sells oil, accepts a large sum of renminbi, what can they do with the renminbi in their hands? The exchange rate of RMB is manipulated by the Chinese government, it is not widely accepted by the international community, it is not freely convertible, and it is not a reserve currency. Saudi banks will not keep a large amount of RMB in their hands. They need to sell the RMB and buy USD or EUR. of hard currency to pay for their imports of European and American products. Who is going to buy a lot of the yuan that Saudi Arabia wants to sell? If others don’t buy it, the CCP has no choice but to take over, because the CCP dare not see the RMB being sold, sold off, and depreciated significantly.
If China is sanctioned for arms support to Russia, can the CCP play the same trick with the Russian ruble with the yuan? I’m afraid not possible. The leaders of the CCP have neither the guts and perseverance of Putin, nor the arrogance or courage of the Russians to break the boat. Russia has something that the West relies on and has to buy (energy), China has no such advantage. The CCP has no way to make Western countries have to use RMB to buy Chinese products, because other countries such as Southeast Asian countries can provide substitute products, even if the price is slightly higher than China’s price, it will be accepted by the market.
The multiple sanctions imposed on Russia by the United States and Western allies following Russia’s invasion of Ukraine have taken a heavy toll on Russia’s economy in many ways. Economists at JPMorgan believe that Russia’s gross domestic product (GDP) could shrink by 7% this year and inflation could hit 14%.
If the sanctions against the CCP are implemented, because the Chinese economy is highly dependent on the European and American markets, the Chinese economy will shrink much more than Russia, possibly as high as 10%-20% or even more. Inflation in China is out of control. The decline in business confidence and the increase in investment uncertainty will drag down asset prices, make more real estate companies like Evergrande go bankrupt, and stimulate capital outflows. The transfer of the industrial chain that has already begun to withdraw from China will continue to accelerate; more multinational companies will have to withdraw from the Chinese market due to the requirements of sanctions.
The sanctions imposed by the United States and Europe on the Russian central bank, although not fully implemented, have frozen at least half of Moscow’s foreign exchange reserves, and Russian gold has struggled to find buyers. With no access to foreign exchange reserves, the Russian central bank’s efforts to stabilize the ruble were so difficult that they had to raise interest rates quickly, from 9% to 20%. Once the CCP is completely sanctioned and kicked out of SWIFT, one of the three pillars of the Chinese economy, the import and export industry, will immediately shut down. Banks cannot issue letters of credit, U.S. dollar payments cannot be made, international buyers cannot place orders, and ships that have already been shipped will drift on the Pacific Ocean, unable to dock in U.S. ports to unload. The CCP’s own CIPS (CNY Cross-border Payment System), because it is also linked to SWIFT, follows SWIFT’s specifications. After cutting off the connection with SWIFT, it is impossible to even run RMB cross-border payments, because other banks must also implement Sanctions on China unless they are willing to never use USD in the future!
After the United States and Europe imposed sanctions on Russia, Russian industries such as aviation have been completely shaken. Since the 1990s, Russia has been slowly integrating into globalized supply chains in industries such as technology and aviation. Following the sanctions, Russian companies have been unable to obtain components manufactured, designed or controlled based on U.S. intellectual property, Russian industry has been brought to a standstill, and half of Russian car companies have closed. Once China is sanctioned, China’s auto industry, aircraft manufacturing such as the C919, smartphones and communications equipment will all grind to a halt. Even China’s high-speed rail has to stop running. All of China’s thousands of civil aviation aircraft, whether it is Airbus or Boeing, have all landed and stopped operating due to parts, maintenance, and contract requirements.
After Russia was sanctioned, it was completely cut off from American financial services, technology and entertainment companies. Apple, Netflix, Visa and Mastercard, as well as American brands such as McDonald’s and Levis jeans, have all left. Once China is sanctioned, American companies will leave China, and European companies and Japanese, Korean, and Taiwanese companies will also follow. Chinese people can still use UnionPay cards to pay in China and neighboring countries, but they will find that the function of paying in foreign currency in European and American countries will disappear from UnionPay cards. In 2020, American Express became the first foreign card organization in mainland China to obtain a bank card clearing business license. After the implementation of the sanctions, American Express will also quickly give up its license in China.
All in all, the size of China’s economy ($14.87 trillion) is about ten times larger than that of Russia ($1.478 trillion), and China’s foreign export trade is $2.7 trillion per year (2020), the size of Russia’s ($400 billion) seven times. The extent of China’s economic integration into the West, the degree of participation in the international supply chain, and the degree of dependence on the European and American markets are much greater than those of Russia (mainly energy exports). Therefore, if the CCP militarily supports Russia and is sanctioned by Europe and the United States, its destructive results and the impact on China’s economy and society are destined to be extensive, rapid, and extremely devastating.
(Dr. Xie Tian is Professor of Marketing at the University of South Carolina Aiken School of Business and John Olin Palm Chair Professor)
Responsible editor: Gao Yi#