Tag Archives: AIIB

China’s Silk Road Economic Project Will Include Gold

The Chinese government seems to be very keen on developing the New Silk Road Economic Belt as fast as possible; an initiative, said to be designed by President Xi Jinping himself, that will increase economic cooperation in the wide Eurasian region. At a stunning speed China and Russia take the lead in strengthening ties in the area. For the wind down of the US dollar hegemony the Silk Road economic project is an important tool. As part of this project two clubs are rapidly developing as we speak, the Asian Infrastructure Investment Bank (AIIB) and the Eurasian Economic Union (EEU). Additionally, China is incorporating gold into the Silk Road project.

The Asian Infrastructure Investment Bank

The AIIB is an international financial institution proposed by China in 2013 to finance infrastructure projects in Asia. The Chinese government has been frustrated with the slow pace of reforms in established institutions like the IMF and World Bank, which are dominated by the US. China’s rapid economic growth in recent years has made them pursuing a greater input in these institutions, but the US has neglected to honor these requests appropriately, forcing China to launch its own institutions.

Despite the US has been pressuring its allies from signing up as AIIB prospective founding members only Japan obeyed, signaling a demise of US power and failing US foreign policy. In a milestone event many western countries have submitted for membership in March and April 2015, amongst others the UK, Switzerland, Sweden, Spain, Portugal, Norway, the Netherlands, Italy, Germany, France, Finland, Denmark, Australia and Israel. The AIIB articles of agreement are expected to be completed by the end of 2015.

China is now playing multiple games at the same time by developing the AIIB and concurrently pressuring the IMF to reform. One of China’s goals is for the renminbi to be included into the IMF’s basket of currencies the Special Drawing Right (SDR). On April 30, 2015, the IMF’s Director Of The Communications Department, Gerry Rice, stated in a press briefing about the SDR review “Yes, the work has begun” (see this video at 28:15). The first IMF board meeting on the SDR review originally scheduled in May 2015, has been “deferred, because the work is underway” (see the same video at 31:30).

The Eurasian Economic Union

The President of Kazakhstan, Nursultan Nazarbayev, first suggested the idea of creating a regional (Eurasian) trading bloc during a speech at Moscow State University In 1994. Afterwards Belarus, Russia and Kazakhstan formed a free trade zone, which turned into a customs union, followed by a single economic space, finally reaching an economic union (the EEU) on May 29, 2014, when an agreement was signed by the Supreme Eurasian Economic Council in Astana, Kazakhstan.

Worth noting is that according to Pravda.ru Nazarbayev is of the opinion the US dollar is an illegal and non-competitive means of payment, “the world currency was not de jure legitimate because it was never adopted by any communities or organizations. There is no such international law,… the world currency market is not a civilized market, as the system of world currency issuance is not being controlled”. Nazarbayev believes the world is heading towards a new monetary system, from “defective capitalism” to “the new capitalism that would be based on a non-defective currency.” Chinese President Xi Jinping visited Kazakhstan in September 2013 where he raised the initiative of the Silk Road Economic Belt at the Nazarbayev University. In March this year China and Kazakhstan signed 33 deals on industrial capacity cooperation.

The EEU is aggressively expanding; its latest official members are Armenia and Kyrgyzstan. By looking at the EEU flag, that displays the whole of Asia, it doesn’t take a lot of imagination to expect they’ll continue expanding. Turkey has mentioned it likes to join and there are talks with Vietnam to form a free trade area.

EEU flag
EEU flag

Russian news outlet RT has disclosed that Vladimir Putin and Xi Jinping have signed a decree on cooperation in tying the development of the EEU with the Silk Road economic project. “The integration of the Eurasian Economic Union and Silk Road projects means reaching a new level of partnership and actually implies a common economic space on the continent,” Putin said. Furthermore, columnist for Russian news outlet Sputnik, Pepe Escobarstated, “What we have here, above all, is the China-led New Silk Road directly connecting with the Russia-led EEU. China and the EEU are bound to set up a free trade zone”. The EEU could potentially grow into a very significant power bloc.

More from Escobar:

The always-evolving strategic partnership is not only about energy – including the possibility of Chinese-controlled stakes in crucial Russian oil and gas projects – and the defense industry; it’s increasingly about investment, banking, finance and high technology.

…The partnership’s reach is extremely wide, from Russia-China cooperation within the Shanghai Cooperation Organization (SCO) to the Russia-China stake in the new BRICS development bank, and to Russian support to the Chinese-led Asian Infrastructure Investment Bank (AIIB) and the Silk Road Foundation.

…Beijing and Moscow, along with the other BRICS nations, are fast moving to trade independently of the US dollar, using their own currencies. In parallel, they are studying the creation of an alternative SWIFT system – which will necessarily be joined by EU nations, as they are joining the AIIB.

There have also been talks for an EEU joint currency titled Altyn, which refers to an ancient currency that used to circulate in Eurasia. In the past Altyn has never been minted in gold, although in Turkic, a language family spoken in Eurasia, Altyn does mean Gold.

Make sure English captions are turned on in the next video clip from Russian television about Altyn.

Belarus, Kazakhstan, Russia and China have all substantially increased their official gold reserves since the first quarter of 2000. Kyrgyzstan to a lesser extent and Armenia has currently no official gold reserves.

Source: World Gold Council

“One Belt One Road” And Gold.

It was first disclosed by Albert Cheng, Managing Director of the World Gold Council, in a speech at the Dubai Multi Commodities Centre April 12, 2015; China has ambitions to include gold in the One Belt One Road (OBOR) economic project. From one of Cheng’s slides we can read:

China Gold Market – the next 10 years – Integrate gold cooperation into One Belt, One Road

– Mr. Xu Luode, President of Shanghai Gold Exchange and a National People’s Congress (NPC) delegate proposed that to integrate gold market development into the strategic development plan of “OBOR” to the NPC & CPPCC ended in mid-March, 2015.

– His proposal suggested that cooperation and development mechanism to involve major gold producers/users along the OBOR.

– This initiative to be led by People’s Bank of China, Ministry of Foreign Affairs, National Development and Reform Commission, Ministry of Commerce and other related ministries, should be developed by leveraging the Shanghai Gold Exchange as the trading hub, and be integrated into the “OBOR” plan.

– Related specialized plans and supportive policies will also be developed to balance the regional developments in China and accelerate the interconnection with countries along the routes.

At first I was a bit skeptical towards these statements; when the Xi Jinping launches new projects all the subordinate bureaucrats need to show that their respective departments will contribute to this. Previously the Shanghai Gold Exchange (SGE) has been very clear about its international ambitions with the SGE International Board, but before any of this is realized let’s not copy-paste every idea they put out, I thought.

However, the first signs of cooperation in the gold industry along OBOR are reality, time to pay attention. On May 11, 2015, China’s largest gold mining company, China National Gold Group Corporation (CNGGC), announced it has signed an agreement with Russian gold miner Polyus Gold to deepen ties in gold exploration. The cooperation will include mineral resource exploration, technical exchanges and materials supply.

“China’s Belt and Road Initiative brings unprecedented opportunities for the gold industry. There is ample room for cooperation with neighboring countries, and we have advantages in technique, facilities, cash, and talents,” said Song Xin, General Manager of CNGGC and President of the China Gold association. Song Yuqin, Deputy General Manager of the Shanghai Gold Exchange has stated, “Asians have a tradition of collecting gold. The gold trade is expected to become a significant component of transactions by ‘Belt and Road’ countries.”

This Is What The AIIB Is About

Until March 31 countries can submit for membership of the Asian Investment Infrastructure Bank (AIIB), a financial institution proposed by China, which has the purpose of being a multilateral framework to finance infrastructure projects in the wide Eurasian region. In recent weeks many Western countries have submitted for membership, the US rejected application as it fears strong cooperation between Asia and Europe will weaken the US dollar hegemony. On April 15 the final list of the founding members will be disclosed.

In October 2013 the initial idea for the AIIB was first put forward by Chinese President Xi Jingping “on constructing a 21st Century Maritime Silk Road to promote maritime cooperation”. The strategic vision has currently developed into the New Silk Road Economic Belt, of which the AIIB is one segment. Another segment is, for example, the Silk Road Infrastructure Fund

AIIB silk road

The New Silk Road Economic Belt Strategic Vision

As early as February 2014, Xi held a meeting with the Gulf Cooperation Council (GCC) to establish better ties between China and the Gulf, for free trade and to secure China’s oil supplies.

That same month China’s Foreign Minister Wang Yi went on a flurry of trips to meet with Israeli Prime Minister Benjamin Netanyahu, the Saudi Arabian crown prince, the Iranian Foreign Minister, as well as many nations in the Gulf and North Africa. West Asia is the region where more than 30 ports of various sizes and functions allow China to both import 60% of its annual requirements of oil and export goods destined for Europe, the premier market for “Made in China”, as well as transport to and from Africa.

It was agreed Beijing will finance a three hundred kilometers high-speed rail between the cities of Eilat and Ashdod, connecting the Red Sea coast to the Mediterranean.

As explained in a study by the Center for Research in International Affairs in Herzliya, the Chinese focus to build new ports and the high-speed rail in West Asia will, inter alia, service an alternative transport route that could continue to operate in the event of a crisis blocking shipping in either the Suez Canal or Strait of Hormuz.

UPDATE April 1, 2015: Prime Minister Benjamin Netanyahu has signed a letter of application for Israel to join the China-led Asian Infrastructure Investment Bank (AIIB)…

Also in February 2014, Xi and Putin reached a consensus on the construction of the Belt and Road project, as well as its connection with Russia’s Euro-Asia railways.

In May 2014 Chinese Premier Li Keqiang visited four African nations; Ethiopia, Nigeria, Angola and Kenya to boost ties. Chinese vice-minister for foreign affairs told reporters that about 60 agreements have been signed during Li’s trip, which ”highlights the great importance we attach to China-Africa relations”. Kenyan President Uhuru Kenyatta has said Li’s visit would be a “game changer” and the region requires “a strong partner who will not only support it in economic ventures but also in peace settlement”. It’s estimated 85 % of Africa’s export to China are raw materials, such as oil and minerals.

The AIIB is very much about developing infrastructure in Asia. For China the New Silk Road Economic Belt strategic vision is about importing (/securing) resources such as oil, have strong export channels and to strengthen ties with trading partners. The main significance of the AIIB is non-US cooperation which will further weaken the US dollar hegemony and change the international monetary environment in the years to come.

Western and non-region members are currently:

  • Australia
  • Austria
  • Brazil
  • Denmark
  • France
  • Germany
  • Italy
  • Luxembourg
  • Netherlands
  • New Zealand
  • Spain
  • Switzerland
  • UK
  • Finland
  • Norway
  • Iceland
  • Malta
  • Poland
  • Portugal
  • South Africa
  • Sweden

Asian (regional) members are now:

  • Bangladesh
  • Brunei
  • Cambodia
  • China
  • Georgia
  • Hong Kong
  • India
  • Indonesia
  • Jordan
  • Kazakhstan
  • Kuwait
  • Laos
  • Malaysia
  • Maldives
  • Mongolia
  • Myanmar
  • Nepal
  • Oman
  • Pakistan
  • Philippines
  • Qatar
  • Russia
  • Saudi Arabia
  • Singapore
  • South Korea
  • Sri Lanka
  • Tajikistan
  • Thailand
  • Turkey
  • Uzbekistan
  • Vietnam
  • Taiwan
  • Kyrgyzstan
  • Iran

Xinhua: China And Germany Deepen Financial Cooperation, Germany Joins AIIB And Supports RMB Inclusion Into SDR

Guest Post

BERLIN, March 17 (Xinhua)China and Germany conducted their first high-level financial dialogue here on Tuesday and agreed to strengthen macro-economic policy coordination, develop policy dialogue and pragmatic cooperation in fiscal and financial areas.

Representing China at the first China-Germany High Level Financial Dialogue, Chinese Vice Premier Ma Kai said the dialogue was established after a decision reached by leaders from both countries during Chinese President Xi Jinping’s visit to Germany last year. The main task of this dialogue is to implement agreements reached by leaders of the two countries, he added.

Ma said that confronted with a complex and fragile global economic situation, China and Germany as important economies should strengthen policy coordination, coordinate strategic cooperation, deepen financial and fiscal cooperation, consolidate and develop the positive momentum of both economies to make further contributions to the steady growth of the world economy.

Representing Germany at the dialogue, German Finance Minister Wolfgang Schaeuble and Deutsche Bundesbank President Jens Weidmann said that Germany and China have been working together very well both bilaterally and multilaterally in financial and fiscal areas.

The formal launch of the high-level financial dialogue will help expand bilateral dialogue and avoid risks in this important area and promote bilateral relations, they said.

Both leaders also said that Germany is paying great attention to the huge success of the Chinese economy as well as the rising influence of Chinese currency renminbi (RMB) on the world market. They expressed hope that both sides could expand bilateral investment and keep deepening their comprehensive strategic partnership.

Both sides spoke of the dialogue mechanism as an important platform for bilateral communication and policy coordination on strategic, overarching and long-term issues in financial fields.

Leaders said they are committed to strengthening macro-economic policy coordination in the G20 context, developing policy dialogue and pragmatic cooperation in fiscal and financial areas in a bid to jointly support global economic growth and improve global economic governance.

According to a joint statement after the dialogue, the German side will actively support China in hosting the G20 summit in 2016 and supports China’s goal to add the RMB to the special drawing rights (SDR) currency basket based on existing criteria.

Germany also announced at the dialogue its intention to join the Asia Infrastructure Investment Bank (AIIB) as a prospective founding member. China welcomed this intention.

During the dialogue, both sides reached consensus on issues such as investment cooperation between China and Europe, China and Germany and in third countries.

Both sides welcomed each other’s banking institutions setting up establishments or developing business operations in their respective markets and plan to hold consultations on bank supervision.

China and Germany also support the establishment and development of an offshore RMB market and a local RMB clearing bank in Frankfurt and welcome German financial institutions using RMB qualified foreign institutional investors (RQFII) quota to invest in China’s markets.

The joint statement said that both sides would support Chinese securities and futures institutions in cooperating with German institutions to establish and conduct business in Germany, including the development, distribution and portfolio management of RQFII products.

China has approved Deutsche Asset & Wealth Management Investment GmbH’s application for RQFII qualification. Both sides supported the Shanghai Stock Exchange, the China Financial Futures Exchange and the Deutsche Boerse Group’s plan to co-establish a RMB offshore platform to trade financial instruments in Frankfurt.

Officials from China and Germany attending the financial dialogue reached consensus on the direction of future strategic cooperation and exchanged views on the macro-economic situation in China and Europe.

Ma and Schaeuble held a joint press conference after the dialogue and later attended a working lunch with Chinese and German business leaders.

Ma also attended a discussion on Industry 4.0 at the Fraunhofer Institute for Production Systems and Design Technology in Berlin on Tuesday.