The Yuan Embrace and The Umbrella Benefits

June 17, 2015

The Yuan Embrace and The Umbrella Benefits.


The Yuan Embrace and The Umbrella Benefits

June 17, 2015

Dear Reader,
Greetings and Good Day,
We most need intellectual clarity in assessing world affairs from the Greek exit from the Euro, to Ukraine to the South China Sea disputes.
There was much fanfare ongoing, preceding Chinese reclamation works in the Spratlys Islands, regarding intentions, code and conduct in the South China Sea ( SCS).
As if other claimants in the SCS has stood idle so far, and we all know that this is not true. Claimants have already displayed airfields and aircraft in the SCS islands, hence any Chinese completion of the airstrips and possible deployment of non fixed wings aircraft need to be seen as ordinary business.
There is nothing military changing the equation here, unless we need to consider empowerment of Chinese monitoring of US submarines an element of  instability, but Japan, the US, Taiwan, Philippines, Vietnam, Australia, plus India are all monitoring the Chinese vessels and submarines.
There is a difference between holding an asset and its usage, the intentions here are clear.
China is building and being vocal yes, but this will not go beyond the ADIZ in the North East with Japan, where things are doing well, coupled to the visible and sustained presence in the South East in the Spratlys, excluding an ADIZ.
From a military stand there is an analysis that China already opened the chess game by exposing her queen to a preemption trap,

http://www.jamestown.org/press…%5Btt_news%5D=43955&tx_ttnews%5BbackPid%5D=59&cHash=ebf2602b58b0f3a6ac6a4e01d3e5ffff#.VXU7PlIwB_h

What merits more discern by contrast is the financial aspect.
And here I wish to say that in my perception there is a financial entrapment that limits the maneuver of the great powers. Russian economy is under a major struggle, the EU is not capable to rejuvenate, Indian development is on
experimental laps, the Chinese fundamentals are swinging back, and the US data is mixed while it is swimming in an ocean of debt.
The financial masters of the universe are facing a dilemma, if they keep the interest rates at zero, there is a major possibility that the artificial stock market will bubble in at least two indexes in New York and Shanghai and side effects will hit the entire international system of the IMF and the AIIB in making. But if they increase the interest rates this will relent the Chinese
economy further and drain its cash, implying a gold sell, and the international economy will contract due to the incomplete transition in China.
Where an environment lacking of reforms and full of corruption and pollution, will not spur consumer spending to have a better share in the GNP even if the PMI of May was 53, 5 ; leave alone enabling job creation in services rather than industrial ( manufacturing and construction).
I recommend an interest raise of the US Dollar in July of a quarter point from one side and from another that European creditors do all possible to impede a Greek exit. There is no point in austerity for Greece when its fundamentals are compromised on the long run. Fixing the problem of pensions and immediate expenses is related to jobs creation. Considering the two sides opposing stances the GRexit is without doubt the most likely possibility.
On the other side of the planet, the rise of China may well witness in the coming two years a trend of ups and downs and the leadership of President Xi will be watching dynamics suggesting much caution, and most likely a reset to a discreet profile posture. This is due to elections in Philippines and Taiwan, which results will reverberate on the SCS issues, but also political frameworks in Turkey (recent elections), Romania, Georgia, Belarus, Kazakhstan, Russian Duma, Iranian Majlis, Syrian enduring Shiite/Sunni Chaos, and ultimately presidential elections in the US.
But also internal Chinese topics recommend on the long run to rephrase the “one belt, one road, two Spratly airports” concept, into middle ground discretion “A servicing regional belt, a state of values and an empowered military”.

It is worth to mention that on the zenith of its economic power in the eighties Japan never displayed an alternative to the financial system, while China already established a center of currency trade in Qatar.
The Heaven Mandate may have incurred several missteps and scars since its inception, but a constant will remain in its evolution and that is its business outlook.
It is worth of notice also that bilateral trade 2014 between China and Russia was less than 100 billion dollars, while with S Korea it exceeded 200. However trade between Japan and Russia or South Korea is much less if confronted with China.

The US and China both have major responsibilities out of facts, numbers, demography, industrial output, consumption, arable lands, poultry, co2 emissions, coal consumption and production, oil “FRACKING’, alternative energy ,
fashion, automotive, space , hi tech, etc…
The US and China both have areas of cooperation and competition. Mainly in the west there is a system based on a pseudo-democratic peaceful alternative/rotation of power, emerging within a polymer of media/military industrial and financial tools, while in China the system is different it is based on an amalgam of Communism,Capitalism and Confucianism.
Without doubt the international citizenry can benefit from a competition between the US Dollar and the YUAN, best expressed in the World Bank basket currencies, and the AIIB policies.

http://foreignpolicy.com/2015/06/16/make-way-for-the-rmb-china-reserve-currency-imf-sdr-dollar/
http://foreignpolicy.com/2015/06/16/yuan-renminbi-world-reserve-currency-special-drawing-rights-imf/

While the US will perfect its own policy on a global basis, using diplomacy coupled to different sized military sticks, it is also a fact that 2016 and 2017 fiscal years will require accurate balancing in US military spending.
The allocation of stipends, salaries, pensions and benefits account for an immense sum, and this recommends to increase the operations of robotics and artificial intelligence in military usage.
The geopolitical phase is being called intelligent chaos or disorder by Robert Kaplan, ensuing an empire return. In fact the dual containment of Iran and Iraq, after Saddam went rogue, was replaced by a sincere attempt to create sane governance in Iraq, but now we witness the change of boundaries in the old conflict where Iranian Guards are combating on a bigger field stretching from Iraq to Syria.
Perhaps after the ISIS genie came out of the bottle of Sykes Picot, it will pierce the line from Karachi to Bursa, and then we will see changes in the Asian mass, to press the Chinese Dragon, but these are skirmishes and tactics.

Much different than the thoughts displayed in “On War” , General Clausewitz and Sir Halford McKinder would have recommended to look beyond what we see.
As much as the Ukraine playing field created tensions culminating in an actual nuclear saber rattling and assets deployments, eminent authors who extensively wrote about Russia and The US relations, lobby for wisdom
http://www.nationalinterest.or…
Personally I think that Putin and his closest advisers will need to refocus, and elaborate a global strategic trend, where Russia will become neutral, nuclear and new or modern if we want. Russian neutrality will give it a great impact on the long run and it can simply start by publicly freezing the whole tactical set in the European theater and the Caucasian mass. The Russian entity is here to stay united and strong for many centuries and thousands of years to come, thus the logic of power consists in tutoring the interests of Mother Russia, neutral, nuclear, new, strong and wise.
The big game is different.
The dual system of world currencies can replace the monopoly in vigor post WW2 and create many opportunities for the world citizenry. Conflicting powers need not to fear this novelty as it will empower both land and sea trade. China knows very well that it has chances to grow only if it keeps the track of the open seas policy and the energy resources flowing.
The dual currency system US Dollar and YUAN is the best guarantee for world peace, and this subtle notion is not being grasped in full by both Chinese and American policy makers.

Whenever we need to interpret the OBOR policies and the recent Memorandum of Understanding signed by China and Hungary, it is necessary to consider that contrary to the encampment of Genghis Khan Grandsons in Europe
http://en.wikipedia.org/wiki/M…
the Chinese modern efforts are very effective and clever. What makes me wonder is that it is very easy for one horse running, to win a race, as it goes unchallenged!
And here I elaborate: scholars managed to advance a theory for conflict based on the Thucydides Trap concept, illustrated by Graham Allison and by others,
http://belfercenter.ksg.harvar…
This theory has a great visibility and is being considered the basin for laying the western thoughts versus the bilateral relationship managing the two powers interaction the US and China. The trap was even cited by President Xi and Chinese military thinkers started defining their strategies based on a Mahan like projection, forgetting about the era when China roamed the seas up to AFRICA and was by far the first world power.
Scholars in affirming their stance about Sparta and Athens do not elaborate significant economic data, (tonnage, agriculture production, demographics, alliances, etc…) many elements are lacking although a couple of links give us some light
http://www.perseus.tufts.edu/h…
http://elysiumgates.com/~helen…

We know also that allegedly, Spartans were prohibited from possessing gold and silver coins, and according to legend, Spartan currency consisted of iron bars to discourage hoarding.
Athens used a currency known as the drachma. Their currency was widely used because of the large trade network that they developed. Often an Athenian coin could be used in other Greek cities and not have to be exchanged for the local currency. One OBOL was one sixth of a Drachma.
In any case we can’t only base our thinking on one theory, and instead of demystifying Thucydides, I will thank Allison for giving us the opportunity to run the race he prospects with another intellectual horse: a different theory.
Since ancient times, ever after Alexander defeated the Persians and reached Indian soil, and the Romans defeated Hannibal and divided their empire, populations had a characteristic in competition. The conquest of Mohamed in the Arabian Peninsula gathered the caliphate might to the Spanish Alhambra, until the Mongols destroyed the library of Baghdad and Genghis Khan Grandsons established their camp almost at the doors of Vienna.
We know that in the succession of international powers Imperial China, Portugal, Spanish throne, Netherlands, Russian Tsar, Prussia/Germany, France and Britain played a primary role, one at a time or in collision very often. Westphalia and the conference of Vienna are treaties of absolute importance.
Thinkers duel about the status quo power and the rising one, citing the example of the UK / US as a peaceful transition, while this is not true. Although the transition took more than a century to occur it happened effectively after the US offered its own resources in alliance with the UK in different circumstances, one was administrative sharing of Beijing and two others were world wars tout court.
The Royal navy played a pivotal role in the siege of French vessels in Egypt and in their defeat in Quebec, as much as naval battles such as Lepanto or the demise of Venice reveal the extent of glory and descent in the historic frameworks. Universal suffrage, Magna Charta and quantitative easing are human achievements of extreme significance.
Different graphics of industrialization, manufacturing, debt, labor or else can be found in the link below comparing the US and the UK,
https://www.google.com/search?…
The point is that ever since China started a new course under Deng, the effort was to include this great nation in the international system, and a lot happened since Tienanmen.
The US today represents a stake of a fifth in Chinese exports and China is the number two holder of US treasuries. Therefore there is a different dynamic governing the relationship between both nations.
Taking advantage of the two currencies the US Dollar and the Yuan as explained above, rivets a major importance.
And I can only reiterate that pursuing a race with a monologue of Thucydides Trap is not healthy, instead we need to consider adopting the second horse, which is based on the theory of the “Yuan Embrace” where two currencies will govern the world simultaneously, a vision that contradicts the Iron and the Oblo fates, and will bring us with much knowledge to shores of amenity.
In fact in a recent article asking if China can be contained, different interesting facts are listed in the link
http://www.wsj.com/articles/ca…
I wouldn’t say the US created a Frankenstein, through the cooperation with China; rather it created job opportunities and helped raise the living standard of millions of citizens. While it is true that the strategic environment changed, it is also true that the vehicles for cooperation are still way more than those of confrontation. The US is doing well to position assets
and create alliances to protect the freedom of the seas, and China has every right to acquire an upgrade its regional status and maritime power projection. There is need for a wise leadership capable to cut the right deal, similar to the one that was cut with Chairman Mao, and the one with Deng Xiaoping.
It is very naive to think that China after decades of growth and centuries of history would become a marionette in the world order whatever this order would be, capitalist, socialist, communist or else. China has its own characteristics and specifics and intellectual frame. Reducing the relation between the US and China to the Trap detailed by Harvard and adopted
by President Xi to acquire a relevance in power rising concept, would be disastrous. The upcoming meeting in September between the US president and the Chinese one is crucial, and the outcome can be of any scenario.
The preferred scenarios are two, either to freeze the SCS controversy and defer the diplomatic solution for a certain period of time perhaps 18 months ( as presaged by the recent Chinese declaration to end reclamation only) ; or the second scenario can be a deal where China can obtain to deploy only non fixed wings aircraft in its runways in the Spratlys, but no missiles of any nature.
While it will give in exchange a major boost to the maritime park concept and will adhere to a total transparency of assets and intentions in the SCS, a “conduct of the brave” excluding any future ADIZ in the SCS.
Certainly the alliances will put more pressure on China and help the triple c nation of Confucianism, Capitalism and Communism to play more humbly and less extravagantly in the game of the nations.
It is time that OBOR gets some pepper and salt and be adjusted and fine tuned to the gusto and palates of the international community but this needs to be served on plates garnished and cooked by the best chefs of Asian geopolitical cuisine.
The new contour of relations between the Philippines and Japan as explained below
http://nationalinterest.org/fe…
as much as Indian/Australian /Japanese/Vietnam, even Taiwan, net of tentacles and sea patrols is without doubt an element of stability in a sea of diverse and diverging claimants much expressed in the “Active Defense” Chinese last white paper legacy.

One can think that only a successful balancing is the right path as recommended here

http://thediplomat.com/2015/06…

By contrast isn’t it true that fixed positions on artificial islands are against the dynamic of speed? And expose largely these assets to even small drone’s attacks?
Without doubt there are geopolitical constrains on each player as beautifully detailed in this article
http://www.informationclearing…

And therefore we need to be networking the alliances and the policies in a collective way to sustain the effects of the upcoming, decades of uncertain navigation while embracing the Yuan.
Let us not also forget that Chinese trend from 2015 will follow a correction in development and this may well lead to an unexplored territory in Chinese internal equilibrium.
http://nationalinterest.org/fe…
http://www.bloomberg.com/news/articles/2015-06-16/china-bubble-debate-turns-to-when-not-if-stocks-will-tumble

It is easy to expect that major public intervention and investments will be directed to contain any side effects on the internal Chinese market. Hence reducing effectively the dreams of empire and greatness of President Xi, a gallant man in need of some British humor, to oppose the steppe and ride the tide of the SCS waves in the best mood, perhaps he should rehearse the umbrella benefits.

Thank You,