In the past month, for the Chinese market, it was a very unusual month. The challenge that China has experienced can be said to be unprecedented. Defenders of the global market economy, the leader of the global economic rules, the United States began to completely contain China in disregard of posture.
In the same period, the RMB exchange rate against the US dollar fell from 6.71 to the current 6.94. Breaking 7 seems to be a matter of moments. Just yesterday, the People’s Bank of China’s Counselor Sheng Songcheng published a signed article. One of the articles was written in this way. We should learn from Japan’s lessons and cannot extend from trade friction to financial friction. We should neither lead to exchange rate depreciation nor allow the exchange rate to be large. appreciation.
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The hegemony of the United States only knows what kind of experience it is if it has experienced a country blocked by the United States.
In 2014, due to the Ukrainian Crimean issue, Russia suffered financial sanctions. The ruble plunged more than 50% and the stock market plunged 60%. In response to the devaluation of the ruble, the Russian central bank once raised interest rates to nearly 20%, and the domestic economy collapsed.
China needs to plan ahead, because whether it can be trade friction, excessive financial friction, does not depend on China at all. From the perspective of Trump's waywardness, anything can happen.
When financial friction comes, the battlefield will become more bloody. From the data of last month, the RMB exchange rate is lower, or the market impact brought by trade friction has begun to appear. Regardless of the explanation, consumer prices in April rose by 2.5%, an increase of 0.2 percentage points over March. The price of fresh vegetables rose by 17.4% year-on-year, the price of pork rose by 14.4%, and the price of fresh fruit rose by 11.9%.
Of course, we have different views on rising prices, but the fact is that inflation expectations are increasing. So if this emotion persists, what is the result? The result is that the central bank has to take measures to raise interest rates. Then everyone thinks about it. At this juncture, what is the impact of the central bank's interest rate hike on the real economy and the stock market? This is where the financial friction is terrible.
Of course, for China, it is a blessing that is not a curse. It is a disaster. In fact, China should have begun to deal with it. I am here to propose three secret weapons to master China. Use these three weapons at least for China. Create a strategic space to move.
The first one, gold.
After the escalation of Sino-US trade frictions, that is, from the end of last year, the People’s Bank of China restarted its holdings of gold reserves. At present, it has continued to increase its holdings for five months. Since December last year, a total of 58 tons of gold has been added, which is more than $2.4 billion at current prices. Don't underestimate this figure, because from December last year, China's US dollar foreign exchange reserves have increased by a total of 22.2 billion US dollars. That is to say, in the past five months, China's increased gold reserves accounted for more than 10% of foreign exchange reserves. %.
In fact, the central bank's increase in gold reserves is only a signal to release that China's real gold reserves are in the trade import market. China’s import of gold has been growing at more than 10% for more than five years. Last year, China imported 1,259 tons of gold, up 15% year-on-year.
Previously, China imported gold mainly through Hong Kong. Since Shenzhen is mainly a global gold jewelry processing base, it is easy to import from Hong Kong. But since last year, more gold in China has been imported directly from Shanghai and Beijing, mainly from the UK and Switzerland. The amount of gold imported by Hong Kong last year fell sharply, from 632 tons of gold in 2017, to 496 tons. Because more gold imported through Shanghai and other places may become a reserve directly, it has not entered the industrial or jewelry field. The coming from Hong Kong basically reflects the demand for jewelry and the like.
If China's financial sector encounters a blockade and the renminbi is difficult to use for international payments, then China's strategic materials can only be obtained in two ways, one is the US dollar and the other is gold. Another role of gold is to increase the credit endorsement of the renminbi, increase the real gold content of the renminbi, and stabilize domestic expectations.
After the US financial sanctions in 2014 and the sharp depreciation of the ruble, Russia began to increase its holdings of gold reserves. In just five years, it increased its gold reserves by more than 1,000 tons, and increased its gold reserves by 270 tons last year alone.
The second one is rare earth.
Yesterday, at the press conference of the Ministry of Foreign Affairs, a reporter asked whether China is considering countering the United States by restricting the export of rare earths. A spokesman for the Ministry of Foreign Affairs replied, don't make too many associations.
The fact is that last year the US government announced an import tariff on Chinese rare earths, but it quickly retracted the decision. In addition, from the United States to impose tariffs on China, rare earths have not been included in the list, no matter whether it is the $200 billion tariff list or the later-named $300 billion collection list, there are no rare earths. The United States is the second largest exporter of China's rare earth industry.
The US Government Accountability Office has a report that states: "If China bans rare earth materials, almost all cars, computers, smartphones, and aircraft assembly lines outside China may be shut down, relying on rare earth in the United States and NATO. The weapon system will also be like this.” Deng Xiaoping also mentioned that there are oil in the Middle East and rare earth in China.
Regarding the importance of rare earth elements, I will not talk about it here. I can tell you a little. One of my teachers specializes in the medical application of rare earth trace elements in human health. I also wrote an important book. The book was mainly used by China to carry out rare earth control. At that time, China's rare earth was imported cheaply by countries such as Japan. The importance of rare earth elements may not only be the electronics and military industries, but in the medical field, the future treatment breakthroughs such as cancer may depend on this. The future prospect is the broadest, the world's real core technology competition field, life science, It is inseparable from rare earths.
China accounts for more than 40% of the world's rare earth reserves, and China is dominant in the extraction process of rare earths. It can be said to be in a dominant position. China already accounts for 80% of the market's exports.
But unfortunately, we still have not formed a profit advantage, and continue to provide cheap supply. The annual export revenue generated by rare earth is less than 1 billion US dollars (less pitiful).
Let me give you an example. For example, there is a metal called palladium, which is also a rare precious metal. If you want to reduce the pollution of automobile exhaust emissions, you must use palladium, but the main producer of palladium is Russia. Russia has long since strictly controlled exports, and in the last decade, palladium prices have soared nearly tenfold. You can think about it. The original amount of palladium was exported. It can earn 500 million U.S. dollars a year. Now, if you can earn 5 billion U.S. dollars, the foreign exchange creation capacity will directly increase by 10 times.
Palladium has been rising for more than a decade.
And our rare earth prices have been falling for several years, which is heartbreaking.
How did Russia do it, just as the price of palladium hit a record high, and the price of one ounce of palladium exceeded $1,600 (in 2009, only $167). In March of this year, Russia not only did not expand the export of palladium, but also continued to introduce The ban restricts the export of some metal scraps to prevent the supply of palladium from being increased by recycling waste.
The rare earth tool, as long as it is used very well, is actually a support for the foreign exchange market. Especially when the US curbs Chinese exports, if the price of rare earth soars tenfold, it is difficult for the importer to find a substitute because of the single supply. The amount will not change much, so after ten years, China’s rare earth exports alone may earn tens of billions of dollars.
The third, bitcoin.
When it comes to bitcoin, many people may not bother to understand. But I just want to say that the future world is not old-fashioned. The world is dominated by imagination. The dollar is an imagination. Gold is an imagination. The 250-year history of the United States is also an imagination. And China’s 40 years of reform and opening up is still an imagination.
According to Bitcoin's current global exchange level, in fact, from a financial point of view, it has more strategic value than gold and rare earth. At present, there are more than 600,000 new outputs per year in the world. According to the current value, it has already exceeded 5 billion US dollars, and more than 70% of them are dug up by China.
At present, if you hold bitcoin worth hundreds of millions of dollars, you can become any kind of currency, including the US dollar, in minutes to the international market. This kind of trading ability has exceeded gold. Everyone knows that China is North Korea’s largest trading partner. What is the total amount of trade that North Korea exports to China in one year? Less than $2 billion. In the past, North Korea’s use of administrative capacity to dig bitcoin was not the best policy, but the best policy.
There are a lot of cheap electricity that is wasted in China. If you hang on to civilian mining, you can instruct some state-owned enterprises to secretly mine and then hoard it for emergency use.
When the US market created Bitcoin, it did not think about an important part of the entire network. The important node of mining was seized by China. Later, with the expansion of the voice of the Chinese market, many developers in the United States began to be jealous and even afraid. . Later, in order to reduce the impact of the Chinese market on the entire encrypted digital currency industry, American developers have come up with various cryptocurrency algorithms that do not need mining. However, these algorithms still lack important endorsement media. They are still in the trial stage.
If the computing power of the global digital cryptocurrency market is in the field of digital currency endorsed by energy conversion, China can have important influence and power. Of course, markets such as Canada are hoping that China will shut down the mining industry and transfer the computing power to these countries.
In summary, gold, rare earth and bitcoin are important resources that can break through the blockade in extreme cases and directly exchange foreign exchange or strategic materials. In peacetime, in the period of trade freedom, the most important endorsement of the renminbi is China’s processing exports and China’s trade surplus. As long as China’s exports are not problematic, it is difficult for the renminbi to have a large depreciation expectation. But the current situation is that the United States wants to block your exports and let you lower your surplus. The direct blow is the credit of the renminbi. When the market enters an extraordinary period, it needs real irreplaceable strategic resources to make the final defense, and then form the top chip of the game, giving the domestic economy and currency field a time to digest external threats and to re-find the development path.
Author: Xiao Lei