2022-11-13 – Markets React to US Chip Sanctions
A recap of mainland China, APAC, and international news items – this week, we look at the markets’ initial reactions to US sanctions on the transfer of advanced semiconductor technology to China.
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Featured news, and weekly summaries on mainland China, APAC, and Central Asia by SINOLOGIX staff and contributing subject matter experts.
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Data Insights - Debt to GDP Ratios
Radically Different Debt Profiles
The contrast between the debt-to-GDP ratio for China andrussia vs. Japan and the US is yet another stark reminder that economic power is shifting away from the traditional g7 countires to the BRICS – notwithstanding questions regarding the accuracy of China’s numbers, it should be clear that both China and Russia are ina much stronger position to continue their economic growth, while both japan and the US have maxed out their credit cards.
In 2022, the US government will pay $305B in interest (to service the national debt) – roughly 5% of the total federal budget. By 2030, that number is expected to grow to $829B, or roughly 10.6% of the total federal budget. Note – this estimate was calculated before the 2022 adjustments to the Fed funds target rate.
Japan and the US are going to find it increasingly diffiuclt to find buyers for JGB and US Treasuries – and that is going to have a profound impact on the value of their respective currencies. China and Russia, on the other hand, have initiated two initiatives that will further erode the US control of global trade – commodity-based currencies and trade settlement using a basket of currencies (other than the USD).
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Data Source – World Bank
Comparative Analysis - PRC and Russia vs. US and Japan
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Debt to GDP Ratios for 6 MDC's (2021)
Data Source – World Bank
Data Insights - GDP Growth
PRC - Selected Developed Countries
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Data Source – World Bank
Economic Bits (our side hobby)
"Things change gradually at first...
...then all at once..."
China GDP vs UST Holdings (2010-22) (billions)
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China GDP vs UST Holdings (2010-22) (billions)
Data Source – World Bank
Global FX Exchange Reserves (2001-22) (% of total)
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Global FX Exchange Reserves (2001-22) (% of total)
Data Source – World Bank
Global FX Exchange Reserves (2001-22) (% of total)
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Global FX Exchange Reserves (2001-22) (% of total)
Data Source – World Bank
Western media is starting to pay attention to China’s efforts to influence members of the so-called Global South, or more specifically the BRICS+ and Shanghai Cooperation Organization (with substantially overlapping membership), to denominate international trade in the Chinese Renminbi (RMB), aks the Chinese Yuan (CNY) and/or other local currencies. For very different reasons, Russia has promoted the idea of an entirely new currency for trade settlement. This is an accelerating trend among countries that have formed close economic and political relationships with China.
Coincident with the pivot to the RMB for trade settlement is a growing sentiment among the BRICS+ and SCO members that holding USD as their primary reserve currency poses a risk in the event the US declares sanctions and/or freezes a country’s assets, as happened with Russia and Belarus in 2022.
The combined effect of these two trends should be observable in a country’s US Treasuries holdings, and that’s exactly what we’re seeing in the chart above – China’s USD and Treasuries holdings peaked at $1.277 trillion in 2013 and declined by more than 32% in 2022.
Things change “slowly at first, then all at once”...
Related Posts
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International and APAC
China and De-dollarization – Part 3 – Trade Agreements
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The so-called “de-dollarization” phenomenon is really a reflection of China’s ascendancy to superpower status – there can be no question it is the main driver behind the emergence of increasingly powerful inter-regional economic organizations, innovative trade agreements that circumvent the USD’s role as the world’s primary currency for trade settlement, and conceivably, the demise of the USD as the world’s de facto reserve currency. In this Part 1, we summarize the key factors that might trigger a future change in currency usage by China and its trading partners.
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2022-11-13 – Markets React to US Chip Sanctions
A recap of mainland China, APAC, and international news items – this week, we look at the markets’ initial reactions to US sanctions on the transfer of advanced semiconductor technology to China.
2022-11-13
China Semi Sector – 2022 Sanctions – Part 1
Recent news coverage in western media suggests that US sanctions against China’s semiconductor sector have caught the CCP and mainland industry leaders off guard. In this research article, we examine this issue in the context of the global supply chain to analyze the short-term and long-term impact of US sanctions and the implications for both China and key industry players.
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