Remember that Russia and China have a strategic alliance, and this makes China obligated to support Russia
When US Federal Reserve Board chairman, Janet Yellen, set three conditions to restore a stable economic relations between the US and China, she thought she would be able to clinch a deal.
From an objective point of view, the proposals were demands from which China could not back down. Others say, the proposals have all the shades of arrogant unilateralism.
First, Yellen demanded that China buy back the $850 billion US treasury bonds (TBs) it sold to curb the festering inflation in their economy.
Yes, the US is obligated to buy those TBs it sold to China if the latter feels the prices for the bonds were declining. China, as purchaser, can redeem those bonds upon their maturity or sell them according to their market value.
One must bear in mind that US TBs are guaranteed by the state, and are redeemable upon surrender by the owner.
US TBs are considered the most valuable assets a holder can present to the US federal reserve bank because they are guaranteed by the US government.
The decision by China to cut off around 830 billion worth of US TBs can rightfully be speculated as a trend on the declining influence of the US dollar as an international reserve currency.
Additionally, for the fact that the relations between the US and China have lately turned shaky and unstable intensified by the US anti-China rant caused by the rise of China as an economic power, US has imposed restrictive sanctions against that country.
Particularly, the US has imposed tariffs on China imports to taper the unprecedented trade deficit it incurred reaching to a total of 800 billion.
The previous administration attempted to curb this by imposing tariff but American consumers complained because the tariff caused US imports to increase in prices.
Failing to abate this trade deficit, US decided to ban its selected imports from China which naturally would invite retaliatory trade sanction from the other countries.
The US soon realized that the problem stemmed from the unusual high value of the US dollar resulting in the perennial loss of exports to the US.
This was consequent to President Nixon’s policy of detaching the US economy from its GDP and instead economically based its strength on its current industrial output.
Through the years, US industrial output waned as many countries increased their exports on manufactured good decreasing the share of the US industrial output.
Japan, noting the decline in the value of the US economy, began to dispose its TBs after it discovered the extravagant sale of the TBs is being used to abate inflation that allowed them to resort to quantitative easing through the printing of US money to allow it to circulate and lighten credit to suppliers.
Following the footsteps made by Japan that disposed of around 300 billion yen in US TBs, China did the same.
This unprecedented withdrawal in US TBs was triggered by rumor that a new international organization known as BRICS (Brazil, Russia, India, China and South Africa) is about to come out with a reserve currency in its forthcoming meeting in August in South Africa.
The BRICS called for a new global currency that can challenge the dominant role of the US dollar.
It also pushed for a greater voice – and more votes – for developing countries in key international economic organizations like the IMF and the World Bank.
The first to challenge was the New Development Bank, with headquarters in Shanghai, China.
They contend it is a “new” multilateral development bank which offers an alternative to the financial institutions like WB and the IMF.
The concept of the de-dollarization or the abandonment in the use of the dollar as the international currency resulted in the stampede in abandoning of the dollar.
Earlier on Feb. 8, 2023, Japan sold a net ¥15.7 trillion of US bonds and ¥1.8 trillion of French securities, both all-time highs.
The fear is that China might just dump altogether its US TBs.
The demand by Yellen for China to buy back 830 billion worth of US TBs is preposterous.
Common sense will tell that the price of treasury bonds fluctuates.
This underscores why owners of the TBs cannot be prohibited from disposing them as they wish.
Probably, China reduced its investment in US TBs because the US dollar is declining in value like the rumor that some countries are about to replace the US dollar as the world’s reserve currency.
China has all the reasons to dump the dollar if it feels its currency will lose its value.
On the second demand for China to lift its counter-sanctions to the US, sad to say, amounts to extortion which cannot be done in civilized business transaction.
China’s counter-sanctions on US (export restrictions on two rare metals indispensable for the making of high-end chips, etc.) is China’s move to restrict the exports of two metals crucial for making some types of semiconductors and electric vehicles, a warning that China will not be passively squeezed out of the global supply chain.
In an editorial published, the Chinese state media said the imposition of controls on exports of some gallium and germanium products was a “practical way” of telling the U.S. and its allies that their efforts to curb China from procuring more advanced technology was a “miscalculation.”
It also argued that China had for years exploited its own rare earth resources at the expense of the environment to supply the global semiconductor industry.
“Under such circumstances, why can’t China make the necessary adjustments and be more cautious about consuming its limited rare-earth resources to support those that have been sided with the US-led “decoupling” push from China?” it said.
The controls do not mean that China will ban exports of the metals but authorities will have the right to reject export applications if the products involve military use or are used in scenarios that may undermine China’s national security and interests.
Analysts saw this as a response to escalating efforts by Washington to curb China’s technological advances.
The demand for China not to support Russia is classic to US practice of unilateralism.
Can the US and its NATO Allies not admit they are engaged in war with Russia?
Maybe some would prefer to call the war they are waging a proxy war, but just the same, the US and its NATO allies continue to support the Ukrainians to their death, though totally given a different interpretation and meaning to justify the pursuit of a proxy war.
In this sense, the US cannot wholly blame Russia or much more point to China as a party supporting that proxy war.
Remember that Russia and China have a strategic alliance, and this makes China obligated to support Russia.
It is no longer a case of who initiated the war but of the truth that both sides are openly supporting a protagonist to the conflict.