China Prepares To Bailout Russia

Tyler Durden's picture

Earlier this evening China's State Administration of Foreign Exchange's (SAFE) Wang Yungui noted "the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, "SAFE is closely watching Ruble's depreciation and encouraging companies to hedge Ruble risks." His comments also echoed the ongoing FX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled "Russia may seek China help to deal with crisis," which which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.

 

As Bloomberg reported, earlier in the evening, China's Wang Yungui noted

  • *CHINA IS CLOSELY WATCHING RUBLE'S DEPRECIATION: SAFE'S WANG
  • *CHINA ENCOURAGES COS. TO HEDGE RUBLE RISKS, SAFE'S WANG SAYS
  • *REAL IMPACT OF RUBLE DEPRECIATION UNCLEAR YET, SAFE'S WANG SAYS

Adding that China plans sweeping reforms to promote FX flexibility.

And then The South China Morning Post hints,

Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge.

 

If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia.

 

"Russia badly needs liquidity support and the swap line could be an ideal tool," said Bank of Communications chief economist Lian Ping.

 

The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the US dollar.

 

Two bankers close to the People's Bank of China said it was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.

 

China has currency swap deals with more than 20 monetary authorities around the world. Swaps are generally used to settle trade.

 

"The yuan-rouble swap deal was not just a financial matter," said Wang Feng, chairman of Shanghai-based private equity group Yinshu Capital. "It has political implications as it is a sign of mutual trust."

 

The rouble has lost more than 50 per cent against the US dollar this year, pushing Russia to the brink of a currency crisis, though measures announced by the central bank helped it recover some ground yesterday.

 

Li Lifan, a researcher at the Shanghai Academy of Social Sciences, said the swap would not be enough for Russia even if it is used in its entirety. "The PBOC might agree to extend something like 15 billion yuan initially as a way of showing China's commitment to Russia."

*  *  *

As we discussed in October when the swap deal was signed,

...as if to assure all involved parties that there will be enough capital support on both sides, the PBOC released a surprising announcement that the central banks of China and Russia signed a 3-year, 150 billion yuan bilateral local-currency swap deal today, according to a statement posted on PBOC website. Deal can be expanded if both parties agree, statement says. Deal aims to make bilateral trade and direct investment more    convenient and promote economic development in 2 nations.

 

To be sure, some such as Bloomberg, are skeptical that the unprecedented pivot by Russia toward China as it shuns the west, will merely harm the Kremlin. Others, however, wonder: who will be left standing: Europe, with its chronic deficit of energy and reliance on Russia; or Russia, a country overflowing with natural resources, whose economy is currently underoing a dramatic and painful shift, as it scrambles to dissolve all linkages to the Petrodollar and face the Gas-O-Yuan?

*  *  *

Is 'isolated' Russia about to be bailed out by the world's largest economy China?

 

Perhaps, they already started...

 

But then again - with the BRICS currencies all turmoiling... (ZAR -22% not shown)

 

Perhaps it is not such a surprise as members take advantage of The BRICS Bank's $100 Billion reserve...

The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 

Incidentally, the role of the dollar in such a world is, well, nil.

For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.

 

Chart: Bloomberg

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talisman's picture

[There were many many times China could have taken steps against the west and they didn't.]...
As corporate financial statements say, past performance is no guarantee of future performance.
US buying public is no longer in any economic position to buy all the junk product that China was able to put out for next to nothing in the past just to get international trading currency....
China has entirely new ranking in the world hegemony and no longer needs to kiss US ass.  

lakecity55's picture

China has patiently built up these yuan-swap agreements in many countries.

They may have to only speed things up.

Sun-Tzu guy would say do fight fight enemy currency, go around enemy currency.

bid the soldiers shoot's picture

 

They are joined at the hip and you are in denial.

Amerikan Patriot's picture

China's Total Debt Surges To 251% Of GDP

China's total debt (financial credit) burden hit 251% of GDP at the end of June, according to Stephen Green at Standard Chartered.

By comparison, the US had a 260% total-debt-to-GDP ratio in 2013 and Japan has 415%, according to the FT.

On the face of it this doesn't look as bad. And the argument typically goes that because a lot of this is domestic, not external debt, China has no reason to worry.

But the concern with China has centered on the rapid rise in debt (financial credit) to GDP from 2009 on.

This financial credit or debt number cited by Green looks at "total social financing (TSF) numbers published by the People's Bank of China,  offshore cross-border bank borrowing and bond issuance, as well as official Ministry of Finance (MoF) debt."

And if you recall China's back on a credit binge. TSF surged to 1.98 trillion yuan in June, from 1.40 trillion yuan in May, and beat expectations for 1.42 trillion yuan. That prompted Bloomberg economist Tom Orlik to tweet that growth has become Beijing's top priority again.

Last year economists said the main bear argument on China was that it took more and more credit growth to deliver less and less economic growth.

Green points to a chart showing the divergence in total credit and nominal GDP. "Clearly, though, until the green and blue lines converge, the economy will continue to leverage up, and the market will remain concerned."

 

VATICANT's picture

What's your point here? That debt is their taking advantage of America whoring out its T's to fund its endless wars and fat lazy-ass welfare takers - taking advantage to bolster themselves into the world's largest and most capable economy. Are you suggesting China is in for a crash? Newsflash: everyone is! It's not about avoiding it, but who's coming out faster and more dominant. Unfortunately for you it's not your homeland, troll

SunnyDD's picture

VATICANT 

login give you a vote-up, Exactly, de mother of all crash is coming, and China is ready for it to happen,Crash all of em currencies if you want, than all will start Zero + Gold and Silver

 

asiafinancenews's picture

It is not just the "quantity" of debt which is important, but also the "quality" of the debt.  Politically-directed lending (apart from the shadow banking system) is still the norm at the large state-dominated banks in China.  The WSJ had a great article some time back describing how the CEOs at the large banks were being given substantial salary increases for making "politically correct" loans, the majority of which resulted in NPLs, while the only CEO to make "economically-justified" loans, which generated large profits for the bank, was passed over for a raise.

As far as Russia and China backing the rouble and yuan with gold, the value in having a gold-backed currency, apart from the crucial aspect of limiting the supply of paper in existence, is that the holder of such currency would presumably have faith (i.e., trust) in their ability to exchange a unit of the paper currency for the corresponding unit of gold upon demand.  Does anyone really trust that China and Russia would really honor such a demand?  Russia, maybe (even probably).  China, I very much doubt.  The PRC has proven itself quite adept at welching on the nation's external debts, which evidences a disregard for honoring contracts or other forms of implicit or explicit commitments.

cornflakesdisease's picture

I don't believe that china or russia would allow any redemtion of the gold.  If they did, Dollar Inc would quickly take advantage of the system to their favor.

Counterpunch's picture
Counterpunch (not verified) Amerikan Patriot Dec 18, 2014 7:41 AM

The whole world is in a bubble, AP, and what you don't seem to grasp is that the US in the worst bubble of all.

 

260%?  That's a joke.

One And Only's picture

Americans always referred to the "NWO" as some illuminati conspiracy meant to hurt them. 

Well now it appears there's a NEW NWO (NNWO) and this one WILL hurt Americans as the USA's number 1 export is....dollars.

I guess...be careful what you wish for...

suteibu's picture

Another lesser-of-two-evils choice; an NWO controlled by Western banks and progressives/neocons or an NNWO that Westerners don't control. 

I'm thinking a little competition would be good for the Western psyche and I'm not liking a lot of what I see from our "dear leaders" right now.

 

One And Only's picture

I'm not sure what country you live in but if it's the USA this is not good. The #1 export for the us is...dollars. The reason being - it's the world's reserve currency. 

The chief benefit of this privilege is that the US can live above their means by exporting our inflation to other countries which are then forced to have a lower standard of living. But with great privilege comes great responsibility, a responsibility that has been used recklessly, irresponsibility, and without thought of consequence of what would happen to America in it's current state if we lived without it.

With that being said without the privilege of having the world's currency and while being the largest debtor nation the demand for dollars held overseas decreases and the dollars (that we exported) get sent back here to the U.S....and guess what that means? A hyper-esque inflationary episode. 

Which makes one wonder about the change in FED language to (we can rate hikes ANY time WITHOUT notice). Also the compromise on the Cromnibus (whipped by a banker), and the trade embargo being lifted on Cuba. 

Really feels like there's a monster under the bed. And this one is real.

Bill Gross said something about TIPS being a good idea lately. At first I thought he was a bit crazy but once I started thinking about how all of this COULD play out, who knows, it might not be a bad idea to hold some TIPS. No one wants any TIPS right now so the natural contrarian in me says to buy some though I have no idea what I'm going to do. 

At the case it's disconcerting. 

suteibu's picture

Your two comments seems at odds with each other.  I agree with a lot of what you say in the second comment so either I misunderstood your first one or...

At any rate, I would not be a big fan of any kind of world order.  I'm all for sovereignty on the personal and national levels.  Cultures matter and no one has given any higher authority the ability to destroy a nation's cultural identity and sovereignty for the benefit of themselves.  Those who push for it are traitors to all nations and a cancer on civil society. 

In my opinion, neither Russia nor China is a threat to me or to the true national interests of the American people.  It is not in my interest for the American government to have a foreign policy of economic, diplomatic, and military hegemony.  And, to be perfectly clear, the USD reserve currency status is part of the hegemony.  There are 6.7 billion non-Americans living with currencies that are not reserve currencies and they seem to getting along fine without it..

One And Only's picture

I don't know the exact number of dollars held overseas (roughly $8 trillion) and half of the world's population are in the BRIC countries. 

If those countries say "we don't need those dollars, here America you can have them back" than all those dollars come back to America and at 8 or 9 trillion dollars suddenly finding their way back home to the USA that's inflationary and there's no two ways about it.

What this zerohedge article states is that the dollar is being completely bypassed for foreign exhchange agreements and trade. If this turns from a small snowball to a large snowball it would happen quickly and it could be the dollar that collapses. 

Unfortunatly I wasn't invited to those meetings so I have no idea what plots are being hatched. However I am aware of the potential risks whether or not they materialize is anyone's guess.

suteibu's picture

I understand what you are saying and why it should concern all Americans.  The question is, are you willing to go to war and kill millions of people in order to preserve the dollar status?  Are you willing to destroy the economies and currencies of other nations (and millions of people who, like you, were not invited to those meetings) so that you do not suffer hardship? 

Japan had to deal with a similar event in the late 80s, early 90s (in large part due to the demands of the US government trying to protect the dollar).  Should the US do that to China and Russia?  Do you think they will accept it as well as the Japanese who, unfortunately for them, are influenced to the point of control by the US?

Where do you draw the line?

ETA:  I am not downvoting you.

One And Only's picture

"I understand what you are saying and why it should concern all Americans.  The question is, are you willing to go to war and kill millions of people in order to preserve the dollar status?"

Aside from religion is there any better reason to go to war other than money and resources? 

Like I said, I don't like war, but if there is a war I want to be the one making money from it. Not being crushed by the consequences. Sure it sounds shallow because money doesn't buy happyness but it sure does pay for the journey to find it.

suteibu's picture

All I can say is that you are inviting some seriously bad karma on yourself. 

To be sure you would not kill a man on the street for his wallet.  However, you seem to have no problem if a government kills for your benefit. 

Perhaps that is the real and only true benefit of government, to be a surrogate for man's darker nature.

bunnyswanson's picture

No system is safe.  No currency is safe but should hundreds of millions of people be at the mercy of this?  There is not a thing wrong with America leading the world.  It was once a nation worth fighting for.  It has been captured by predatory businessmen and covert war is underway to ensure no one interfers with their plans (the game Monopoly).  Do Not Pass Go means to not start over again by taking 1 step too many.  Only option for freedom loving people is destroy this entity and that could be done by joining Russia and the BRICS.

fel.temp.reparatio's picture

I wonder what a US $10,000,000 note will look like...

jonjon831983's picture

Wouldn't it be interesting if the "support for collapsing RUB" was actually cover to dump more USD to buy more RUB, but then how much USD would be required?

RaceToTheBottom's picture

Diversification and power brokering.

Things the US used to do, but now considers beneath itself.

Schmuck Raker's picture

"Time, Time , Time, See what's become of me......[massive power chord riff in Girl Major Key]"

Time, time, time, see what's become of me
While I looked around
For my possibilities
I was so hard to please
But look around, leaves are brown
And the sky is a hazy shade of winter

Hear the salvation army band
Down by the riverside, it's bound to be a better ride
Than what you've got planned
Carry your cup in your hand
And look around, leaves are brown now
And the sky is a hazy shade of winter

Hang on to your hopes, my friend
That's an easy thing to say, but if your hopes should pass away
Simply pretend
That you can build them again
Look around, the grass is high
The fields are ripe, it's the springtime of my life

Ahhh, seasons change with the scenery
Weaving time in a tapestry
Won't you stop and remember me

But look around, leaves are brown now
And the sky is a hazy shade of winter

Look around, leaves are brown
There's a patch of snow on the ground...

bitterwolf's picture

Rome taught the world that any good political theatre needs the big fall guy.....gee folks what people/nation makes the list millenia after millenia...coming in due time...the ancient chessmasters have the two big religions/political forces going gangbusters at each others necks...... as the world watches ......a

 global awakening and understanding begins to dawn....

Grouchy Marx's picture

Shorting gold? Nyet!

Negative1's picture

Hey Russia, thanks for North Korea. Does everything you touch turn to shit, you wooden ruble mutherfuckers.

Stumpy4516's picture

Maybe I have it wrong.  But this is not a bail out, it is not a loan or debt forgiveness.  It is a currency swap.  The total possible amount is $24 B, which is 1 month of the Fed's QE.  Shows/compares the amount of financial clout the two countries have to work with, which is why Russia is at such a disadvantage at this time.  Sure is good to be the global reserve and hints at the damage that will occur if that ends.

 

ebear's picture

"It is a currency swap"

It's a shot across the bow is what.

LMLP's picture

Nooo....It is however a good test of a system they designed specifically for these purposes...

 

How to deal with a financial crisis without involving the west where possible.

 

ooo financial independance now as well.... oooops...

Dapper Dan's picture

And I belive they share a border, no?

 axis and allies.... and ex-allies

 

“It happened that a fire broke out backstage in a theater. The clown came out to inform the public. They thought it was a jest and applauded. He repeated his warning. They shouted even louder. So I think the world will come to an end amid the general applause from all the wits who believe that it is a joke.”
? Søren Kierkegaard

 

 

 

earleflorida's picture

This is America's 'Gordian knot' that has snared a pyrrhic victory out of the jaws of Faustian's grave...

sad[?]

FallenOne's picture

Hooray for uncle Benny!!! The east are whackos the west are Psychos who will Duke Nukem first???

Maybe Obama just comes on the telly one day and says: "Russia is our greatest threat and it is time we take swift and decisive action first strike options are now on the table!" That's when all hell breaks loose...

Jim in MN's picture

 

 

Q:  How do you say 'Taiwan' in Cuban?

A:  MINE MOTHERFUCKER

Augustus's picture

Pretty funny that, in divorcing themselves from the USD, they announce the size of the agreement in denomination of USD.

 

So Putin can swap 60 rubles for 1 USD or 10 rubles for one CNY.  The advantage of the alternative is???

DoChenRollingBearing's picture

 

 

In the official documentation of the "BRICS Bank", the only currency mentioned is US$, not Yuan, not Rubles.  Basic information on the "BRICS Bank":

http://goo.gl/rMqBNC

Ginsengbull's picture

Being the nation with world reserve currency is overrated.

 

If the dollar is strong, it makes our products less attractive for other countries to buy. Too expensive.

 

We could devalue the dollar by printing more, but every other shithole country is doing the same, because the bankers are in cahoots.

 

We're all headed for hyperinflation. Get ready for the ten dollar happy meal.

 

 

All_Your_Base's picture

What products? Depleted uranium - we give it away (at high velocity)? GMO food substitutes? FRNs?

Seems like the only products we offer are toxic.

DarthVaderMentor's picture

If the Chinese jump in the water to save the Russians and the water turns out to be too deep for them as well and they get in trouble, then all hell breaks loose and Obama may have really started WW3 and even Jane Psaki's tweets won't save us!

DarthVaderMentor's picture

But all of these business decisions were made BEFORE the Ruble went unstable. Let's see if the trail of cash continues in the next 60 days.

Augustus's picture

Russia can build all of the nuclear generators for India that the Russians can finance.

alrightee_then's picture
alrightee_then (not verified) DarthVaderMentor Dec 18, 2014 2:26 AM

Funny how people still think the world is running by chance.....it's all engineered there's nothing left to chance AT ALL

 

1945 British National Archives Document Calls For New World Order Now

 

 

steelrules's picture

You need to read this if you think it's business as usuall.

http://www.ronpaulinstitute.org/archives/featured-articles/2014/december...

Today the US House passed what I consider to be one of the worst pieces of legislation ever. H. Res. 758 was billed as a resolution “strongly condemning the actions of the Russian Federation, under President Vladimir Putin, which has carried out a policy of aggression against neighboring countries aimed at political and economic domination.”

In fact, the bill was 16 pages of war propaganda that should have made even neocons blush, if they were capable of such a thing.

These are the kinds of resolutions I have always watched closely in Congress, as what are billed as “harmless” statements of opinion often lead to sanctions and war. I remember in 1998 arguing strongly against the Iraq Liberation Act because, as I said at the time, I knew it would lead to war. I did not oppose the Act because I was an admirer of Saddam Hussein – just as now I am not an admirer of Putin or any foreign political leader – but rather because I knew then that another war against Iraq would not solve the problems and would probably make things worse. We all know what happened next.

That is why I can hardly believe they are getting away with it again, and this time with even higher stakes: provoking a war with Russia that could result in total destruction!

http://www.truthdig.com/report/item/three_congressmen_just_reignited_the...

The Russia Sanctions bill that passed “unanimously,” with no scheduled debate, at 10:23:55 p.m. on Dec. 11, 2014, includes:
1. Sanctions of Russia’s energy industry, including Rosoboronexport and Gazprom.

2. Sanctions of Russia’s defense industry, with respect to arms sales to Syria.

3. Broad sanctions on Russians’ banking and investments.

4. Provisions for privatization of Ukrainian infrastructure, electricity, oil, gas and renewables, with the help of the World Bank and USAID.

5. Fifty million dollars to assist in a corporate takeover of Ukraine’s oil and gas sectors.

6. Three hundred and fifty million dollars for military assistance to Ukraine, including anti-tank, anti-armor, optical, and guidance and control equipment, as well as drones.

7. Thirty million dollars for an intensive radio, television and Internet propaganda campaign throughout the countries of the former Soviet Union.

8. Twenty million dollars for “democratic organizing” in Ukraine.

9. Sixty million dollars, spent through groups like the National Endowment for Democracy, “to improve democratic governance, and transparency, accountability [and] rule of law” in Russia. What brilliant hyperbole to pass such a provision the same week the Senate’s CIA torture report was released.

10. An unverified declaration that Russia has violated the Intermediate-Range Nuclear Forces Treaty, is a nuclear “threat to the United States” and should be held “accountable.”

11. A path for the U.S. withdrawal from the INF Treaty, which went into force in 1988. The implications of this are immense. An entire series of arms agreements are at risk of unraveling. It may not be long before NATO pushes its newest client state, Ukraine, to abrogate the Non-Proliferation Treaty, which Ukraine signed when it gave up its nuclear weapons, and establish a renewed nuclear missile capability, 300 miles from Moscow.

12. A demand that Russia verifiably dismantle “any ground launched cruise missiles or ballistic missiles with a range of between 500 and 5,500 kilometers ...”—i.e., 300 and 3,300 miles.

If anyone thinks I am exaggerating about how bad this resolution really is, let me just offer a few examples from the legislation itself:

talisman's picture

If China decides to heavily cash out a few$$$ jillion more
US Treasuries, it wouldn't be a bad idea to "get out when the gettin is good" while the US can still fool the world into propping up its house of cards Ponzi economy.

Augustus's picture

China cannot really "cash out" without killing the value of their UST holdings.  They can stop buying though.

fel.temp.reparatio's picture

Stopped buying, started selling... ~$14b since September.

TeethVillage88s's picture

Yes, China down $14 Billion since August 2014, but was higher total on Mainland. Hong Kong increase over the year as well off-setting selling by China.

China, Mainland $1252. Billion, Hong Kong $161 Billion, Oct 2014, Long Term Treasuries, so yeah $1413.7 Billion Total for China. That is the best number I got.
Russia $108.9 Billion, Oct 2014.

http://www.treasury.gov/ticdata/Publish/shl2002r.pdf
http://www.treasury.gov/ticdata/Publish/shla2013r.pdf
(http://www.treasury.gov/ticdata/Publish/mfh.txt)
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm

Below Last Data is from April 2014.

Belgium 2002 = $10.8 B, then 2013 = $163 B, Today $366 B
Cayman Islands 2002 = $10.7 B, then 2013 = $66 B, Today ??
Canada 2002 = $8.4 B, then 2013 = $46.6 B, Today $60.5 B
China 2002 = $95 B, then 2013 = $1,272 B, Today $1263 B
Hong Kong 2002 = $37 B, then 2013 = $89 B, Today $155 B
Ireland 2002 = $6 B, then 2013 = $91 B, Today $112 B
Japan 2002 = $260 B, then 2013 = $1,023 B, Today $1210 B
Luxemburg 2002 = $20.2 B, then 2013 = $107 B, Today $141 B
Philippines 2002 = $3 B, then 2013 = $36 B, Today $34 B
Poland 2002 = $7 B, then 2013 = $31 B, Today $30 B
Russia 2002 = $3 B, then 2013 = $138 B, Today $116 B
Switzerland 2002 = $28 B, then 2013 = $157 B, Today $178 B
Taiwan 2002 = $0 B, then 2013 = $183 B, Today $175 B
United Kingdom = $45.7 B, then 2013 = $130.6 B, Today $186 B