The first salvo of an American war against China

© AP Photo / Andy WongБиржевые graphics are reflected in the glass brokerage firm in Beijing<img src="/wp-content/uploads/sites/5/2017/05/f9a4cf9129515dc159d169ea7fb85684.jpg" alt="The first salvo of an American war against China" />© AP Photo / Andy WongИван Danilov, economist, blogger Crimson Alter

In the night of may 24, Moody’s downgraded the sovereign rating of China, from the level Aa3 to A1, and it was the first decline of the sovereign rating of China since 1989, when the Western world was concerned about the events in Tiananmen square. At this time, analysts of the rating Agency motivated its decision by the fact that the Chinese economy could not cope with the overload debt, and this, in turn, means that the risk of default on Chinese debt becomes higher. The narrow-minded opinion, this decision by Moody’s may seem small pin to Beijing, but it’s not a small thing. It is at least financial sabotage operation, and as a maximum — the first salvo of the us financial war against China.

The fact that for a long time Western rating agencies perform a political rather than a commercial role. Attempts to find in their actions of objectivity can only lead to a smile. Unfortunately, the downgrade in credit rating is not only a propaganda weapon, but it is a serious tool economic impact on the geopolitical opponents. The mechanism of this effect works due to the fact that the vast majority of private and public investment funds, as well as a significant part of major corporations guided by the ratings when making decisions about investing in a particular country.Often such restrictions are sewn into the founding documents of the funds or the procedures for risk management, but quite often there are cases when the limitations associated with credit ratings, are of a legislative nature. Roughly speaking, a downgrade instantly cuts off from the economy of a particular country a certain part of international investors, and also causes the part of those who have brought money into the country, to immediately sell their investments. If the number of such investors, fugitives, exceeds a certain critical level, the market of shares and bonds of the affected country falls along with its national currency.

Moody’s analysts trying to maintain an illusion of objectivity and assure that further declines in the near future is not planned, but in this case matters only the rating and change it as they determine the behavior of investors. The attentive reader certainly learned the scheme that was once used against Russia, and now have contours similar attack on China.

In Chinese the situation is complicated by the fact that Beijing is now busy with a very difficult fight against capital flight from the country, and to stop falls native, Chinese capitalists and bureaucrats who strive to bring the country a family, get yourself a «political» or «investment» visa in Canada, Australia or US, and then leave China, together with significant amounts. Especially advanced businessmen and officials involved in withdrawal of assets for several years before the final move, but at the same time any deterioration of the international situation or the fluctuations of the yuan force them to work more actively to withdraw money from the country. It turns out that the action by Moody’s will annoy Beijing twice, it will have to deal not only with the departing foreign investors, but also with the revitalization of the Chinese «financial fugitives». Again, the attentive reader will see Parallels between what is happening with China now, and some periods of recent Russian history.Desire once and for all «to solve the Chinese problem» is a rare unifying factor for the entire American political elite, including «renegade» Donald trump and his entourage, who failed to get Beijing’s passing of North Korea or any significant concessions in important matters of world trade and protectionism.

Moreover, finding a very specific contours and planetary scope of the globalization project «One belt and one road» and the recent summit on the topic in Beijing has provoked in Washington, a mixture of fear and irritation, which could lead to the desire to make Chinese ambitions a painful financial setback.Since the United States has traditionally considered some financial safe haven, if you encounter any serious problems in other parts of the world economy capital is traditionally run on the American market of shares and bonds, which also can not please the organizers of the sabotage rating from Moody’s. An added bonus is the fact that in case of real problems in the us economy, any negative can be attributed to the fact that a Chinese debt crisis has provoked the chain reaction all over the world. For the American elite to blame all the problems of the American economy in China can be as enticing as attempts to shift the blame all political problems on Russia’s intervention in the American elections.

Moody’s attack on China miraculously coincided with the statement by the Director of the budget Department of the White house Mick Mulvany, which recognized that tax revenues to the us budget began to shrink and that the US Federal budget could lose money faster than previously thought.© AP Photo / Jacquelyn MartinДиректор budget the White house office of Mick Mulvany. 24 may 2017The first salvo of an American war against China© AP Photo / Jacquelyn MartinДиректор budget the White house office of Mick Mulvany. 24 may 2017

Translated in ordinary language, this means that the U.S. debt ceiling will have to raise again, and will have to do it sooner than planned. Under these conditions, the inflow of «scared money» fleeing China, will be for Washington as it is impossible by the way.

The downgrade has led to a temporary depreciation of the Renminbi and Chinese stock market indices, however, due to the intervention of the state financial structures, the negative effects have been quickly eliminated. Can Beijing to quickly recapture a subsequent decrease in the ratings is a question that is difficult to answer unambiguously. I must say that the debt problems of China’s real and official Beijing acknowledges the problem and is working on a solution, but the actions of the us rating agencies are obviously biased.

If to judge according to equity, similar to a rating downgrade must be subjected to the United States, and many countries of the European Union. Now, according to Moody’s, it turns out that the credit risk of China. Estonia is higher than the risk of Australia, whose economy depends entirely on exports to China and on Chinese investment.

The first salvo of an American war against China© RIA Novosti / Alexei Nikolskiye fotomontaggi in the world will be non-Western: Russia’s place on the Silk putinesti Moody’s create another serious problem that stems from the fact that Chinese companies are addicted to the dollar loans, which they get at low interest rates in international markets. However, this bias creates a negative dependence on the goodwill of foreign credit institutions and vulnerability to sabotage the rating, because the rating downgrade of the country automatically entails the lowering of individual corporate ratings of Chinese borrowers, which in turn raises the interest rates on their dollar loans, or even can deprive some companies of access to opportunities to refinance in foreign currency.

It is also somewhat reminiscent of the unpleasant events that accompanied the beginning of total Western pressure on the Russian economy in 2013-2014.

The first salvo of an American war against China© RIA Novosti / Natalia to Seliverstova in photomontagist: the silk road project will help to reduce dependence on dollaropoker the first wave of the global financial crisis, the BRICS countries began work on the creation of their own parallel financial structures that could replace or at least compete with Western analogues. After the emergence of the Ukrainian crisis and the beginning of the mass use of Western rating agencies in the geopolitical struggle, the impression that all countries that have been or may be in a similar situation, realized the necessity of creation and support of alternative rating agencies, which could deprive US of the opportunity to use credit ratings as a weapon of mass economic destruction. Some progress in this direction has indeed been achieved, but it is obvious that you need to hurry up and do more. America now seems to be telling China and Russia: «Every element of the financial infrastructure that you do not have time to select Washington, will necessarily be used against you.» Should listen and draw the correct conclusions from these first volleys of a new phase in the global financial war.

 

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