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Investment blockade: trump wants to deprive China of dollars

Инвестиционная блокада: Трамп хочет лишить Китай долларов

The US and China may sign an agreement and stop trade wars. But even if that happens, Washington is going to prohibit us companies to buy Chinese securities, which will lead to unpredictable consequences. Cause if the White house is another blow to the Chinese economy?

Not a bad start

“Going well” — succinctly assessed the trump negotiations with China. And promised that the trade agreement should be “finalized” in mid-November.

According to him, the parties completed a “significant phase”. Beijing has promised to increase purchases of American agricultural products, not to artificially weaken the yuan and to refrain from further raising tariffs on imports. Also there has been progress on the most painful issue — the protection of intellectual property. Washington, in turn, agreed not to raise duties on Chinese goods from 25 to 30% from 15 October, as planned.

The markets interpreted this as the actual ending of the trade war — stock quotes and commodity prices went up. But, as analysts say, the eager tramp’s full and unconditional victory. So ready to strike again, closing Chinese companies access to U.S. investment resources.

Says Bloomberg, citing sources in the presidential administration, the White house intends to limit portfolio investments to China, in particular — prohibit pension funds to buy Chinese securities. It also discusses the possibility of a ban to trade stocks of Chinese companies on U.S. stock exchanges.

Economists warn that if it would work in the short term, it will eventually hit the United States like a boomerang. Trump so often uses the dollar as a weapon that increasingly undermined the confidence of investors and stock traders to the U.S. currency.

Professor of international Economics of the Institute of global policy at the University of London international relations Paola Subacchi notes that the new measures against China can destroy the us stock market.

“It is unlikely that many foreign companies will want to trade their securities on the stock exchange, knowing that they can at any time arbitrarily excluded from the listing, she says. — And how many non-US residents will be ready to keep their own financial assets in the Bank, if any geopolitical confrontation risks to turn into freezing?”

As a result, in the world will increase the desire for global monetary reform in favor of the Euro and the yuan. A new system of international payments will be focused on developing countries, primarily exporters of oil and raw materials, I’m sure Subacchi. The ability of the US to affect the global financial market will decrease sharply.

The opposite effect

Restrictions on investments in Chinese companies will hit primarily in the United States.

“If Washington really cope with such an investment blockade and realize it is quite difficult — the consequences will still be directly opposite to the expected,” — said in an interview with CNBC Michael Pettis, Finance Professor at Peking University.

China almost do not suffer. The Chinese authorities do a lot to keep the biggest company house. For example, in July launched the “your Nasdaq” stock exchange Star Market, specializing in the shares of local high-tech firms.

As for the possible delisting c the American stock exchange USA — it is very dangerous. According to Gavekal Dragonomics, more than 200 Chinese companies, including giants such as Alibaba has attracted American capital markets tens of billions of dollars.

In the case of prohibition, American investors will lose access to the companies considered by most analysts as “a long-term history of growth.” Besides, it will strengthen for the U.S. trade imbalance.

“If the American capital, which could be sent to China, staying at home, net imports of capital will rise, and together it will increase the current account deficit of the USA and not China, but in General,” explained Pettis.

Anti-dollar club

In fact, global monetary reform is already happening. Up to 70% of transactions in world trade until are carried out in dollars, but U.S. currency is weakening every day. Reject it all the more countries that fall under the sanctions, Washington and tired of the aggressive policy of the White house. Russia, Iran and Turkey consider that to pay for the oil, gas and other commodities in dollars there is no reason. Last year in trade with Turkey in rubles and Lira accounted for 22%, and 21.1 per cent on the Russian currency. Another 12.9% of the hand calculations carried out in euros.

With China’s share of payments in national currencies has reached 17% and continues to grow. In the next five years Moscow and Beijing are going to double bilateral trade from $ 100 billion a year to $ 200 billion by 2024-mu. Even in 2015, “Gazprom Neft” all exports of oil to China nominated in yuan. And in August this year Rosneft announced that it will stop using the dollar for export contracts.

Dollar assets in international reserves of the Central banks of different countries are shrinking: by the end of 2018, their share fell to 61.7% — at least over the last twenty years, estimated by the European Central Bank. Since the global financial crisis of 2008, this figure has decreased by seven percentage points.

“The dollar is still the world’s reserve currency, but its leadership was visibly shaken,” says the European Central Bank. According to Bloomberg, Russia has shown the world that a country with a large economy and the fifth largest in the world foreign exchange reserves can get rid of the greater part of the dollar assets and “feel great”.

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