CHINA: THE MEANING OF CONSTITUTIONAL AMENDMENTS

Taiwan in the amendment

The 20th National Congress of the Communist Party of China (NCCPC) established Xi Jinping's core position in the Party, the Central Committee and the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, and it set the rejuvenation of China on "an irreversible historical course."

Xi’s role as the “core” of the party was reaffirmed in amendments to the party’s constitution approved by Congress on the closing day.

A resolution said that the “Two Establishes”, which define Xi as the “core leader” of the Party and his thoughts as the guiding principles of China’s future development, were the major political achievements of the Party.

This follows the introduction in 2021, into the constitution, of the "Two Establishes" idea, which confirmed Xi as the core of the Party and its Central Committee (CC), and the guiding force of “Xi Jinping Thought on Socialism with Chinese Characteristics for the New Era.”

To better reflect “new achievements” under Xi’s leadership, the delegates agreed to add “new developments” in the past five years to the section on “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”.

Xi Jinping after the Congress

Also added to the constitution was a reference to further elevating the party’s status in public life, referring to “the party as the supreme leading power”, and urging it to “continue to strengthen the comprehensive leadership of the party”.

The Congress, which retained Xi as Party General Secretary and Chairman of the Central Military Commission, will also be etched in the annals of history forever, as it confirmed President Xi for an unprecedented third term. 

The Party has now broken a rule established two decades ago by outgoing President Jiang Zemin: a retirement age of 68. 

The foundations for Xi’s third term were laid in 2018 when the National People’s Congress voted to remove the two-term bar for presidents that had been introduced by Deng Xiaoping, China’s paramount leader from 1978 to 1989.

Xi is only the third leader in modern China to have an ideology in his name after “Mao Zedong Thought” and “Deng Xiaoping Theory”.

The amendment of the constitution indicates Xi’s authority. At the last national congress in 2017, Xi’s eponymous ideology of Socialism with Chinese Characteristics for a New Era was first enshrined in the party constitution, alongside the doctrines of Mao and Deng, elevating Xi to their level.

The post of Chairman, which Mao held, was abolished after he died in 1976. The system of the general secretary as head of state began with Jiang Zemin, who was general secretary from 1989 to 2002 becoming President in 1993.

Half the members of the 25-person Politburo, aged out under the retirement rule.

Four members of the Politburo Standing Committee retired: Premier Li Keqiang, 67; National People’s Congress chairman Li Zhanshu, 72; Chinese People’s Political Consultative Conference chairman Wang Yang, 67; and Vice-Premier Han Zheng, 68.

They were replaced by  Li Qiang, 63, Li Xi, 66,  Ding Xuexiang 60, and Cai Qi, 66. Together with Wang Huning, 67, and anti-corruption chief Zhao Leji, 65, they form the new Politburo Standing Committee, led by Xi Jinping.

Li Keqiang, 67, the Premier, is not in the C C and will step down, according to the constitution, having completed two terms. The new PM will be Li Qiang, since he is the second in the hierarchy, after Xi.

Li Xi, 66, the Guangdong Party Chief is among the 133 new members of the Central Commission for Discipline Inspection (CCDI) and is the only member in the body who is on the 25-strong Politburo. He is on track to become the Secretary of the Central Commission for Discipline Inspection, replacing Zhao Leji.

A surprise exit from the Central Committee is, Chen Quanguo, 66, the former party chief of both Xinjiang and Tibet. He was promoted to the Politburo, the party’s highest policymaking body, five years ago. Transport Minister Li Xiaopeng, 63, the son of former National People’s Congress chairman and Chinese premier Li Peng, central bank governor Yi Gang, 64, and Guo Shuqing, 66, the head of China’s banking regulator have also exited from the C C.

Senior diplomat Yang Jiechi and Vice-Premier Liu He retired from the CC. 

However, Foreign Minister Wang Yi, 69, is among the new Central Committee members.  He took up the Politburo seat vacated by Yang Jiechi, who retired.

Once viewed as a top candidate for China’s uppermost echelon of leadership, Hu Chunhua, 59, Vice Premier, exited the Politburo. He has been an enforcer of Xi’s poverty alleviation project.

Breaking the age rule, General Zhang Youxia, 72, Vice-chairman of the Central Military Commission, finds a place in the latest C C. to take up a superior position. But Vice-chairman General Xu Qiliang, Defence Minister General Wei Fenghe and Joint Staff Department chief General Li Zuocheng have all reached 68 and are absent from the new C C. General Miao Hua, chief of the CMC’s Political Work Department, and General Zhang Shengmin, head of military discipline, are still in the C C. Both are under 68.

Vice-premier Sun Chunlan, 72, the sole female Politburo member, retired without replacement. It is the first time in 25 years there has been no woman in the decision-making body.

Though age is still considered, cadres are evaluated according to a matrix of myriad factors including background and efficiency. One of the criteria for President Xi Jinping in picking his top team was the candidates’ ability to “struggle” with the West to circumvent sanctions and safeguard national security, according to state news agency Xinhua. “Party secretary Xi Jinping personally took charge of the planning and personally took charge of the gatekeeping,” the report said.

Appointments to central government positions will be finalized in March during the annual session of the National People’s Congress, China’s parliament. Xi will assume another term of presidency then.

The new PB standing committee

The highest-ranking body in the state apparatus is the National People's Congress (NPC), which meets annually, typically in March. The NPC elects the president - a role which, since 1993, has been held by the Party's general secretary. The president in turn nominates the premier, ratified by the NPC, who presides over the State Council or the cabinet.

Xi would, upon completion of this extended tenure of five years, have ruled over China for longer than any leader barring Mao, who held power for 33 years.

Xi's appointment as Shanghai’s top official 15 years ago at the age of 53, set him up for a seat on the PSC at the party congress held in 2007. He and Li Keqiang jumped two spots to reach the Standing Committee, then, which is rare.

Held every five years, the Congress has three main tasks: to endorse leadership transitions; to approve changes to the party constitution, and to deliberate on policy issues. In all, 2,338 delegates represented almost 97 million Communist Party members. 

While Jiang Zemin, 96 and Zhu Rongji, 93, could not attend the Congress, Song Ping, 105, the most senior retired Politburo Standing Committee member was present.

In the Party hierarchy, the most important bodies are the NCCPC and the C C. The NCCPC elects the CC, while the general secretary, politburo, and Politburo Standing Committees are elected at the first plenum of the Central Committee held after the NCCPC.

Nested within the 25-member top body, Politburo is the seven-member Politburo Standing Committee (PSC). New PSC members replace those who retire according to a convention, qishang baxia, or  “seven up, eight down”. The age of retirement is 68 years, and the oldest new entrant can be  67.

The changes this time resulted in a more homogeneous CC than ever in terms of age and experience. Members in their mid-50s and 60s occupy most of the seats in CC.

Blueprint for modernization

During these momentous changes, Xi gave China’s foreign policy a new direction than ever before. He also sought to increase Beijing’s global reach through his Belt and Road Initiative (BRI).

Xi set priorities in a landmark 2013 speech to prevent China from meeting the same fate as the Soviet Union. Since rising to the top in 2012, Xi has cracked down on corruption in the CCP and introduced several new bodies in the party. As chair of China’s Central Military Commission, Xi controls the People’s Liberation Army (PLA). 

Following the Party’s 18th National Congress, Xi, as general secretary, set forth a series of original strategies for governance, and China’s economic development became much more balanced and sustainable. 

Xi's view that China faces a deteriorating external situation in its relations with the United States also set the scene.

China’s emergence as the second-largest economy with military might, over the last two decades, made the happenings at the Congress of compelling interest to the rest of the world. The Congress promised continuity, reorientation, and a paradigm shift in policy and governance.

The signals for changes to the long-term structural policy are in line with the major elements of Xi's thoughts in the 14th Five-Year Plan. Released in early 2021, it includes long-term objectives through 2035.

Hence, in his work report to the Congress, Xi said that the effort will be “to realize the Second Centenary Goal of building China into a great modern socialist country in all respects and to advance the rejuvenation of the Chinese nation on all fronts through a Chinese path to modernization."

Xi observed that the next five years will be crucial for ensuring that the efforts to build a modern socialist country in all respects get off to a good start.

It is because China is now following a zero Covid policy. China set a modest growth target of 5.5 per cent this year, but the World Bank said last month it would be just 2.8 per cent, much lower than the 5.3 per cent for “developing East Asia and the Pacific outside of China”.

Add to it, there are also concerns about a global recession, which has been reflected in China’s real estate sector, which constitutes 30 per cent of the country’s GDP, and commercial banks are exposed to it.

Though Congress has not put forth macroeconomic policy solutions, it reiterated “Common Prosperity,” the slogan that Mao gave during China’s years of great impoverishment, Deng resurrected to justify the economic reforms of the 1980s, and Xi promoted. In Xi’s view, “Common Prosperity” will be achieved only by closing out inequalities.

Gradually, Mao’s dream is getting fulfilled. At the eighth Congress in May 1958, he envisaged an industrialized nation, which he summarized by the slogan, “Three Red Banners,’ ie, “go all out, aim high, and build socialism with greater, faster, better and more economical results.”

Taiwan and strategic deterrence

At the close of the Congress, the Party added, “fully, faithfully, and resolutely implementing the policy of One Country, Two Systems; resolutely opposing and deterring separatists seeking Taiwan independence" to its constitution, the first time such an explicit reference has been included in the document to address tensions around the island.

Hinting at the amendment, in his report to the Congress, Xi favoured a hardline approach to relations with the West, particularly over Taiwan.

On Taiwan, Xi reiterated striving for complete reunification in a peaceful way, but said "we will never promise to renounce the use of force". Resolving the Taiwan question and realizing China's complete reunification is, for the Party, “a historic mission and an unshakable commitment”, he said.

He was obviously referring to the visit to Taiwan by the U S Speaker Nancy Pelosi in August which prompted China to launch military exercises around the island. 

He pointed out that “resolving the Taiwan issue is a matter for Chinese people themselves, and must be resolved by Chinese people alone.”

Xi has said in the past that "reunification" with Taiwan "must be fulfilled" by 2049, the centenary of the People's Republic. A Chinese takeover of Taiwan would shatter US power in the western Pacific Ocean and beyond. Taiwan is part of the so-called "first island chain", which has been allied with the US for decades.

But, while the Congress was on, Taiwan signed a $77.8 million service contract with the U.S. to maintain the performance of its Patriot air-defence systems in intercepting missiles.  Under the five-year contract, which will expire at the end of 2027, the U.S. will send experts to Taiwan.

On Hong Kong and Macao, Xi said, China will implement the policy of One Country, Two Systems, under which the people of Hong Kong administer Hong Kong and the people of Macao administer Macao. He warned that “we will crack down hard on anti-China elements who attempt to create chaos in Hong Kong and Macao”. 

Beijing imposed an all-out national security law in Hong Kong after the turmoil in 2019.

China also has territorial claims in the South China Sea. Its “nine-dash line” laying claim was ruled unlawful by the Permanent Court of Arbitration at The Hague in 2016, but Beijing has refused to recognise the decision.

The new PB standing committee members

Global Times reported that delegates from Northwest China's Xinjiang Uygur Autonomous Region and Southwest China's Xizang Autonomous Region spoke highly of Xi’s report to the Congress, vowing to fully implement the Party's guidelines.

At the Congress, without naming the U.S., Xi remarked: "China... resolutely opposes all forms of hegemony and power politics, opposes the Cold War mentality, opposes interfering in other countries domestic politics, opposes double standards," and  "will never seek hegemony and will never engage in expansion".

Just ahead of Congress, the American national security strategy issued by the Joe Biden Administration (US NSS) affirmed that China remains its greatest threat. In his foreword to the NSS, Biden says “Russia poses an immediate threat to the free and open international system, recklessly flouting the basic laws of the international order today, as its brutal war of aggression against Ukraine has shown.” He names China, on the other hand, as “the only country with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military and technological power to advance that objective”.

It means the Biden Administration now sees the Indo-Pacific as the principal strategic theatre.

On security, Xi said in his report: “We will establish a strong system of strategic deterrence, increase the proportion of new-domain forces with new combat capabilities, and speed up the development of unmanned, intelligent combat capabilities.”

The country’s 14th five-year plan report released last year emphasised the need to “build a high-standard strategic deterrence”.

Strategic deterrence is the will and ability to wield military power to prevent the use of force by another state and to dissuade adversaries from launching a nuclear attack.

And, China had become a nuclear power, exactly 58 years ago, on October 16, 1964.

The U.S. tried to show the crudest form of hegemony towards China by imposing tough export regulations targeting China’s semiconductor industry,  just before the Party Congress. It was a gesture designed to humiliate China. The sweeping new export controls are aimed at cutting off China from obtaining chips used in supercomputers. The sanctions prevent the sales and service by US businesses to Chinese chip manufacturers. Aware of this, Beijing has made contingency plans to deflect the U.S. action. The U.S. is concerned that Chinese chip manufacturers were rather closer to attaining parity with US technologies than previously thought.

The Netherlands’ AMSL is the world’s biggest supplier of advanced chipmaking gear, and Washington is threatening the company with exclusion from the US market unless it bans sales to China.

The West is also peeved by other strategies led by China. The leaders of the Shanghai Cooperation Organisation (SCO) at the recent summit at Samarkand chalked out a road map to conduct bilateral trade and investment and issue bonds in local and national currencies instead of US dollars and UK Pounds or Euros, seeking an end to the dollar hegemony.

Former US President Donald Trump had deeply weaponised the dollar during Covid and trade with China was labelled a ‘war’. There have been unilateral sanctions placed on perceived threats and ‘enemy' countries. Countries like China, at the receiving end, have been preparing to hit back, and now it has become a reality.

The U.S. has a lot to worry about since it is the world's largest debtor nation, with an accumulated federal debt now topping $28 trillion. China holds $980.8 billion of U.S. Treasurys—3.2% of the total U.S. debt.

But, China is reducing its share in U.S. treasury bonds and preparing for currency swap facilities as part of the BRI and the Regional Comprehensive Economic Partnership with South-East Asian countries. Most of the ASEAN countries are ready for this.

China is already a heavyweight, with its $19 trillion economy. For more than a century, no U.S. adversary or coalition of adversaries had reached 60 per cent of the US GDP. And yet, China reached this milestone quietly in 2014. When one adjusts for the relative price of goods, China’s economy is already 25 per cent larger than the U.S. It is clear, then, that China is the most belligerent competitor that the U. S. has ever faced.

President Biden's absurd declaration that Covid is over, makes it clear that the U. S. economy is sick.

 Xiaokang-China shows the way

Contrary to the expectations of western analysts, Xi reiterated at the Congress that economic development is the Communist Party’s “top priority,” signalling that Beijing will continue to emphasize growth. “Development is the party’s top priority in governance,” he said.

Since Xi has been highlighting the need to balance security concerns with economic growth since 2020, Western analysts prophesied that Xi would drop the development-first focus. 

But in his report to Congress, Xi stuck to the party’s goal for per-capita GDP to reach the level of a moderately developed country by 2035. At the same time, he  mentioned  the need to “balance development with security."

He said that China has entered a period of development in which strategic opportunities, risks and challenges are concurrent and uncertainties and unforeseen factors are rising.

Warning of various unpredictable dangerous events ("black swans") and foreseeable but unaddressed dangers ("grey rhinos") that may occur at any time, he urged Party members to be more mindful of potential dangers, be prepared to deal with worst-case scenarios, and be ready to "withstand high winds, choppy waters, and even dangerous storms".

Xi repeated the party’s key economic policies, including “dual circulation.” Dual circulation involves expanding domestic demand, focusing on the domestic market, improving the country's capacity for innovation, reducing dependence on foreign markets, and at the same time remaining open to the outside world. 

Xi and Li Qiang after the Congress

China has accomplished its first centenary goal of building xiaokang - a moderately prosperous society in all respects by 2021 and to start the second centenary goal of building a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious by 2049.  "By xiaokang, we need to achieve a per capita GNP of $800", Deng Xiao Ping elaborated on multiple occasions.

Hard work brought dividends. China's GDP in 1952 was 67.9 billion yuan with per capita GDP at 119 yuan, while in 1978, the GDP increased to 367.9 billion yuan and the per capita GDP in that year was 385 yuan, according to a white paper on China's xiaokang issued in 2021.

At the same time, China's list of trading partners, which numbered in the 40s in 1978, grew to 231 economies in 2017. In 2010, China's per capita GDP tripled from India's $1,358.

Impact on Covid policy

China's zero Covid policy is one of Xi's landmark strategies and in the report to Congress, he said the policy was an "all-out people's war to stop the spread of the virus."

At a recent Politburo meeting, Xi said the issue should be viewed as long-term and systematic and, from a political perspective, in terms of the relationship between pandemic control and economic development. 

Congress didn't offer any policy changes like an easing of regulations and further cyclical stimulus. It was because the NCCPC is a forum for long-term structural policy, rather than short-term cyclical policy.

Alleviation of poverty

At the Congress, Xi said the Party “has won the largest battle against poverty in human history”.

While the West waited for China’s impoverishment, the country took the lead in alleviating poverty. There was a feeling of contentment in the Congress, because the World Bank’s latest report, Poverty and Shared Prosperity 2022, recognised China to have reduced poverty at historically unprecedented levels.

Intending to provide lessons to other developing countries, the World Bank and China’s Ministry of Finance undertook a study in 2019 to understand how China did it and the study was published earlier this year.

The World Bank found that during 1978 - 2019, China’s poverty headcount dropped from 770 million to 5.5 million people. China lifted 765 million people from extreme poverty in the past four decades.

It means, on average, every year China pulled 19 million poor people out of extreme poverty. In doing so, China accounted for almost 75 per cent of the global reduction in extreme poverty.

In 2021, China declared that it has eradicated extreme poverty.

Taken together, improvements in health, education, and income during this period are reflected in China’s rising position on the Human Development Index from 106 (out of 144 countries) in 1990 to 85 (out of 189 countries) in 2019.

It is a lesson for global policymakers, especially for India, because China is comparable to India in terms of population size. Perhaps, China’s achievement was churning the mind of Dattatreya Hosabale, general secretary of the Rashtriya Swayamsevak Sangh (RSS), when he lamented thus, recently: “Over 20 crore (200 million) people who live here (in India) are below the below poverty line. Around 23 crores (230 million) people are having (just) an income of Rs 375 ($4.5) per day. The unemployment rate is also very distressing at 7.6 per cent. There is poverty, and unemployment in the country but we also need to discuss the rising inequality.”

The RSS is the Hindu nationalist organization that moulded the character of Indian Prime Minister Narendra Modi. 

To add to India’s woes, the latest edition of the Global Hunger Index report, released by Concern Worldwide and Welthungerhilfe, based in Germany, ranked India 107th out of 121 countries that could be ranked and 136 countries that were assessed.  The Indian government responded by summarily dismissing the report, going so far as to claim that it was done to “taint India’s image”.

Against this backdrop, the 20th Party Congress was held on a strong foundation of scintillating achievements, and the march ahead for China will continue. Whether the West likes it or not, a $ 19.91 trillion economy and an assertive military will continue to make China, a formidable engine of growth and a compelling influencer of global happenings. 

The US-led West is in terminal decline and the space for global leadership has opened up for an Eastern coalition led by China. As Mao said, “the east wind is now prevailing over the west wind.” 

© Ramachandran 

SCO FOR INDIA, CHINA AND THE WORLD

The global order has to be more reasonable

As the leaders of China, Russia, and India, with the new member Iran, huddled together at the Shanghai Cooperation Organization (SCO) summit at Samarkand in Uzbekistan, the West waited on pins and needles to gauge and interpret the outcome.

Chinese President Xi Jinping, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Pakistan Prime Minister Shehbaz Sharif and Iranian President Ebrahim Raisi were among the leaders of the 15 countries at the summit.

Both Xi’s and Modi’s presence were closely watched for the possibility of bilateral meetings on the sidelines of the summit. The last time Xi and Modi were face-to-face and in-person and had a bilateral meeting was in November 2019, during the BRICS summit in Brazil. Both met in an informal summit at Mahabalipuram, India, in October 2019, the second one after they met at Wuhan, in April 2018.

The SCO summits in the last two years were held in a virtual format due to COVID-19. This was the first in-person summit after June 2019 when the SCO summit was held in Bishkek, Kyrgyzstan. Last year, the summit was held in Dushanbe, Tajikistan, in a hybrid format.

Modi with Putin and Xi

This was Xi’s first official trip to a foreign nation since COVID-19. Xi’s last official trip to a foreign country was to Myanmar in January 2020. His last trip outside of mainland China was on June 30, 2022, to Hong Kong to mark the 25th anniversary of the city’s return to the motherland in 1997.

Xi’s trip to Samarkand underlined China’s strategic ties with Central Asian states at a time when relations with many Western nations have come under strain due to China’s neutral position on the Ukrainian issue.

Xi and Putin met on the sidelines of the summit, for the first time since the Ukraine crisis. Xi said China and Russia should expand pragmatic cooperation, while Putin thanked the Chinese leader for his “balanced” stance on Ukraine. Putin expressed Russia's support for the one-China principle, and denounced US provocations in the Taiwan Straits and its attempts to create a "unipolar world."

Samarkand summit saw agreements on connectivity and high-efficiency transport corridors and a roadmap for local currency settlement among member states. It deliberated on the geopolitical situation arising from Ukraine. Besides, the situation in Afghanistan under the Taliban regime was on the table as well since many SCO member countries are neighbours of Afghanistan.

After the signing of the Samarkand declaration, the heads of the SCO countries declared the inadmissibility of interference in the affairs of states under the pretext of countering terrorism. The SCO countries supported the non-proliferation of nuclear weapons and the continuation of nuclear disarmament.

The Samarkand declaration also termed unilateral use of economic sanctions, except those imposed by the UN Security Council, is incompatible with international law principles. The SCO countries emphasized the importance of the soonest inclusive reform of WTO with an emphasis on adaptation to current economic realities.

The declaration advocated a “commitment to peaceful settlement of differences and disputes between countries through dialogue and consultation.”

Uzbekistan and China signed agreements worth a total of US$15 billion in trade, investment and financial and technical cooperation. China, Kyrgyzstan and Uzbekistan also signed a trilateral MOU regarding cooperation on a railway connecting the three countries, while a trial run of the multimodal road-rail link from China to Afghanistan is also being planned.

To further promote the rich cultural and historical heritage of the people and the tourism potential of SCO member states, it was decided to declare Varanasi, Modi's constituency, as the SCO Tourism and Cultural Capital for 2022-2023, the Samarkand declaration said.

The Mission of SCO

Founded in Shanghai in June 2001, the Beijing-headquartered SCO is a nine-member economic and security bloc consisting of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India, Pakistan and now Iran. It has three Observer States interested in acceding to full membership (Afghanistan, Belarus, and Mongolia) and nine Dialogue Partners (Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka, Turkey, Saudi Arabia, Qatar and Egypt).

It is a unique plurilateral grouping that holds two summits a year, one at the Heads of State and the other at the Heads of Government level. It is seen by the West as an eastern counterbalance to NATO. The presence of India and China, the world’s most populous countries, makes SCO the organization with the largest population coverage. The SCO accounts for about one-third of the world’s land and exports trillions of dollars annually.

The SCO, which grew from the “Shanghai Five” pact of the mid-1990s, is governed by consensus. It also functions more as a venue for discussion and engagement where high-level dignitaries from across the region can gather to confer, rather than an alliance like the EU, whose members have a common currency, or NATO. Since its inception, the SCO has mainly focused on regional security issues, and its fight is against regional terrorism, ethnic separatism and religious extremism. The SCO’s priorities also include regional development.

The Dushanbe Declaration on the 20th anniversary of the founding of the SCO last year expressed support for Afghanistan as an independent, neutral, united, democratic and peaceful state, free of terrorism, war and drugs. It is critical to have an inclusive government in Afghanistan, with representatives from all ethnic, religious and political groups of Afghan society.

Summit

The declaration also condemned terrorism in all its forms and manifestations. Member States reaffirmed the need to step up joint efforts to prevent terrorism and its financing, including by implementing existing global standards on combating money laundering and the financing of terrorism and by suppressing the spread of terrorist, separatist and extremist ideologies that feed it.

The declaration emphasized the importance of sharing experiences on the design and implementation of national development strategies, digital economy plans and the adoption of innovative technologies. It stressed the need to increase mutually beneficial cooperation in the energy sector, including the wide use of renewable and alternative energy sources.

The Entry of Iran

The SCO Samarkand Summit also assumed significance as Iran, for the first time, attended as a full member. The decision to admit Iran was made at last year’s Dushanbe Summit and Belarus has submitted its membership application. This was the first expansion of the SCO after India and Pakistan were admitted to the grouping in 2017.

This marks the first time Iran has become a full member of a major regional bloc since its 1979 revolution. Iran’s bid to become a full member of SCO was approved after almost 15 years. The country had been an “observer member” since 2005. Full membership means linking Iran to the economic infrastructures of Asia and its vast resources.

Iran is eyeing political and economic gains, especially with China, with which it signed a 25-year comprehensive cooperation agreement in March 2021, and Russia, with which Iran is looking to expand a pre-existing cooperation agreement. Iran could gain significant access to the Central Asian region, which can be regarded as a market for exports of Iranian goods.

U.S. sanctions could prove to be roadblocks on the way to achieving those potentials should they persist, but will not halt Iran’s economic progress. Iran and world powers have conducted six rounds of talks in Vienna to restore the country’s 2015 nuclear deal, which, if successful, would see U.S. sanctions lifted.

Iran’s previous bids for SCO membership were blocked because it was under United Nations sanctions, and some members, including Tajikistan, were against it due to Tehran’s perceived support for the Islamic Movement of Tajikistan.

Article in China-India Dialogue

But at the Dushanbe Summit last year, Iran also signed eight agreements with Tajikistan’s President Emomali Rahmon. The two set a target of US$500 million for annual bilateral trade. During a speech at Dushanbe, Iranian President Ebrahim Raisi denounced “unilateralism” by the U.S. and called for a concerted effort to fight sanctions.

SCO members are reluctant to entangle themselves in Iran’s rivalries and at Dushanbe, they also admitted Saudi Arabia, Qatar and Egypt as “dialogue partners” in a balancing act.

The volume of trade with the national currencies of Iran, Russia and China has been modest even as they have discussed de-dollarization for decades, and efforts are on to launch an alternative financial messaging service to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) global financial network.

This round of expansion shows SCO’s rising international influence and the principles of the SCO charter are widely accepted. The SCO expansion is not akin to that of NATO, which is being expanded in the shadows of the Ukrainian crisis. The expansion of NATO is different as the SCO is a cooperative organization based on non-alignment and not targeting a third party, while NATO is based on a Cold War mindset.

The SCO believes one should not build its security at the expense of other countries while NATO is creating new enemies to sustain its existence. The SCO members are contemplating how to adapt to the profound changes in the global milieu, to make the global order more reasonable.

The process of Belarus's accession to the SCO has been made at Samarkand Summit. It has had a dialogue partner status since 2010 and an observer status since 2015. The new decision does not mean an automatic change in the status of the country. According to the provision on SCO accession of 11 June 2010, an applying country should join around 40 international treaties and make respective changes in the national legislation. It took around two years for India and Pakistan to carry out these procedures.

Negotiations will be held on granting UAE, Kuwait, Bahrain, Maldives and Myanmar the status of dialogue partners.

SCO for India and China

As a prelude to the Samarkand Summit, the disengagement between India and China in the Gogra-Hot Springs region opened a window of opportunity for the two sides to engage at the highest level.

India assumed the rotational presidency of the SCO at the end of the Samarkand Summit. Delhi will hold the presidency of the grouping for a year until September 2023. So, next year, India will host the SCO summit.

Modi, speaking at the Samarkand summit said he wants to transform India into a manufacturing hub. He pointed out that there are more than 70,000 start-ups and over 100 unicorns in India, and that the country is one of the fastest-growing economies in the world.

The SCO’s significance for India mainly lies in economics and geopolitics with the Eurasian states. It is a potential platform to advance India’s Central Asia policy. The SCO member states are India’s extended neighbourhood where India has both economic and security interests.

The SCO-Afghanistan Contact Group to stabilize Afghanistan provides India with a vital counter to some other groupings it is a part of. The SCO provides the only multilateral platform for India to deal with Pakistan and Afghanistan.

Leaders at Samarkand

Acknowledging the strategic importance of the region and SCO, Modi has articulated the foundational dimension of Eurasia as being “secure.” India needs to improve connectivity with Central Asia through the Chabahar port in Southeastern Iran and it wishes to utilize the Ashgabat Agreement for a stronger presence in Eurasia along with a focus on the International North-South Corridor (INSTC).

The Ashgabat Agreement is a multimodal transport agreement between the governments of Kazakhstan, Uzbekistan, Turkmenistan, Iran, India, Pakistan, and Oman for creating an international transport and transit corridor facilitating the transportation of goods between Central Asia and the Persian Gulf. The agreement came into force in April 2016. Ashgabat in Turkmenistan is the depository state for the agreement.

The SCO has also been involved in building the Vladivostok-Chennai sea route. This sea route covers approximately 5,600 nautical miles or about 10,300 km. A large container ship travelling at the average cruising speed of 20-25 knots, or 37-46 km/hour, should be able to cover the distance in 10-12 days. India is building nuclear power plants with Russia’s collaboration in Kudankulam on the sea coast in Tamil Nadu’s Tirunelveli district. The opening of a sea route is likely to help in the project.

India also wishes to use SCO’s goal of promoting economic cooperation, trade, energy, and regional connectivity to improve relations with Pakistan and persuade it to unblock India’s access to Eurasia.

The increasing terrorist activities in the region make it imperative for SCO countries to develop a cooperative and sustainable security framework and make the Regional Anti-Terrorist Structure more effective.

A major thorn in India’s engagement with Eurasia remains the denial of direct land connectivity to Afghanistan and beyond by Pakistan. The lack of connectivity has dampened the development of energy ties between the hydrocarbon-rich region and India.

But China is clearly in the strongest position. Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan have signed on to its Belt and Road Initiative (BRI), and those like Kyrgyzstan and Tajikistan are dependent on Chinese investments. China accounts for 45.3 per cent of Kyrgyzstan's external debt, and China has built a military base there recently. It is to be owned by Tajikistan’s Rapid Reaction Group (Special Forces) with the US$10 million costs financed by China. It will be located in the eastern Gorno-Badakhshan autonomous province near the Pamir mountains. Chinese troops will not be stationed there.  

Loans from China account for 16 -17 per cent of the GDP of Turkmenistan and Uzbekistan.

And Kazakhstan, which borders China’s northwestern Xinjiang Uyghur Autonomous Region, traditionally leaned towards Russia – in January it called on Moscow for assistance to quell mass protests – it is also interested in China and its “deep pockets.” Its support, as a Muslim country, is important for China.

On 25 January 2022,  Xi Jinping hosted the five leaders of Central Asia to commemorate the 30th anniversary of diplomatic relations between China and Central Asian countries. In this Summit, China announced to increase in the trade target between China and the region to USD 70 billion by 2030. A provision of USD 500 million was made to assist Central Asian countries over the next three years in their implementation of “socially significant” projects.  The Central Asian region is rich in natural resources: gas in Turkmenistan; oil, gas and uranium in Kazakhstan; uranium and gas in Uzbekistan; hydropower in Tajikistan and Kyrgyzstan.

On its part, keeping its independent diplomacy, India had stayed away from the trade pillar of the U.S.-led Indo-Pacific Economic Framework (IPEF) meeting in Los Angeles on September 8-9. India’s Union Commerce Minister Piyush Goyal cited concerns over possible discrimination against developing economies. India was the only one of the 14 IPEF countries, which include Southeast Asian countries, Australia, New Zealand, South Korea and Japan, not to join the declaration on trade. It means New Delhi will not be cheated by Washington easily.

Hence, SCO, like BRICS, is a vehicle for India and China to co-exist peacefully for the current era to be viewed as the Asian century. Towards that goal, the Samarkand Summit is a new milestone.

This article was published in China Pictorial: http://china-pictorial.com.cn/scos-growing-influence-in-a-multipolar-world

China-IndiaDialogue: http://chinaindiadialogue.com/scos-growing-influence-in-a-multipolar-world

© Ramachandran 

DOLLAR HEGEMONY OVER, A NEW ROAD MAP IN VIEW

 SCO Summit Decides on a New Course of Action

The leaders of the Shanghai Cooperation Organisation (SCO) at the recent summit at Samarkand have decided to conduct bilateral trade and investment and issue bonds in local and national currencies instead of US dollars and UK Pounds or Euros.

The group - which comprises China, India, Russia, Pakistan and Iran alongside four Central Asian states - in a declaration said "interested SCO member states" had agreed on a "roadmap for the gradual increase in the share of national currencies in mutual settlements", and called for an expansion of the practice.

The declaration did not say who the "interested states" were. It is significant that Iran, like Russia, subject to broad international economic and financial sanctions, has also joined the SCO and is an oil-producing country.

Both China and Moscow are the driving force behind the push toward national currencies as it tries to reduce their reliance on the U.S. dollar and other Western currencies for trade following the imposition of sweeping new Western sanctions in response to the Ukraine crisis.

In his speech at the summit, Chinese President Xi Jinping said: "We need to ensure implementation of the roadmap for SCO member states to expand shares of local currency settlement, better develop the system for cross-border payment and settlement in local currencies, work for the establishment of an SCO development bank, and thus speed up regional economic integration".

The Chinese yuan became the most traded currency on the Moscow Exchange for the first time on October 4, 2022, with trading turnover in the yuan-ruble pair reaching 70.3 billion rubles ($1.17 billion), surpassing the 68.2 billion rubles for the dollar-ruble pair. A total of 64,900 transactions were made using the yuan-ruble pair, compared with 29,500 for the dollar-ruble pair on the same day. The yuan also overtook trading in the euro-ruble pair, which recorded a trading volume of 47.5 billion rubles.

In the first eight months of 2022, trade between China and Russia totalled $117.2 billion, up 31.4 percent year on year.

In early September, China and Russia reportedly signed an agreement to switch trade payments for gas supplies to China to the yuan and the ruble based on a 50-50 split, instead of the dollar, paving the way for a more frequent ruble-yuan usage in bilateral trade.

In the first week of September, the Russian gas producer Gazprom said China would pay for half its Russian gas supplies in rubles and half in Chinese yuan. Previous contracts have been denominated in euros or dollars, the dominant reference currency for the global oil trade.

In August, Russia's largest gold miner, PJSC Polyus, completed the issuance of 4.6 billion yuan in bonds, less than one month after Russian aluminium company Rusal issued 4 billion yuan-denominated bonds in the Russian market. The bonds were listed on the Moscow Exchange with a coupon rate of 3.8 percent. The bond underwriter was Gazprombank.

The issuance of foreign-currency bonds means China is a strong economy, has stable financial and monetary policies and a large capital market volume. 

Russian firms and banks were involved in almost 4 percent of international yuan payments by value in July. That was an increase from 1.42 percent the previous month and zero in February when the Russia-Ukraine conflict began.

Yuan-ruble trading volumes have soared 1,067% since the Ukraine crisis, though this is broadly seen as a sign of the allies strengthening ties to help weaken the influence of the US.

Most recently, the People's Bank of China announced it is developing a yuan reserve with the Bank for International Settlements and five other nations, including Singapore and Hong Kong. Each of the members will contribute about 15 billion yuan, or $2.2 billion. 

Also, China will push for the expanded use of the digital yuan from the first four trial cities -- Shenzhen in South China's Guangdong Province, Suzhou in East China's Jiangsu Province, Xiongan New Area in North China's Hebei Province and Chengdu in Southwest China's Sichuan Province -- to province-wide testing, to ramp up the innovation of the digital yuan.

China's Ministry of Finance and the Macao Special Administrative Region (SAR) government have jointly announced a plan to issue yuan-denominated treasury bonds worth 3 billion yuan in Macau on September 7, a move to strengthen financial cooperation between the Chinese mainland and the SAR. And, the Ministry of Finance issued yuan-denominated treasury bonds worth 5 billion yuan in the Hong Kong SAR on August 10.

India is planning to buy Russian oil at discounted prices and even consider the Chinese yuan as a reference currency in an India-Russia payment settlement mechanism. Saudi Arabia is in active talks with Beijing to price some of its oil sales in yuan.

According to bankers, imports from Russia can be paid in yuan via multiple mechanisms. One way is that an India-based bank exchanges US dollars for yuan from its offshore branches in China or Hong Kong.

Another way is for an India-based bank to tie up with a Chinese bank for settlements. It is also possible for an Indian company to directly take a loan in yuan from a China-based bank.

Most state-run banks send dollars to their offshore branches in Singapore, Hong Kong or China.

In June, some 30% of the payments by Indian entities for the commodity were in the Chinese yuan and 28% in the Hong Kong dollar. The euro accounted for under a quarter and the UAE dirham around a sixth.

In July, Russia became India’s third-largest coal supplier with record imports of 2.06 million tonnes.

UltraTech is importing "157,000 tons of coal from Russian producer SUEK that is loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino," an Indian customs document reviewed by Reuters shows, while the settlement currency is in yuan, with the total cargo valued at 172,652,900 yuan ($25.81 million).

The Road Map

Details and a road map against the US dollar had been finalized and signed at SCO’s Finance Ministers’ meeting in Moscow as early as March 2020, after which the plan was temporarily shelved due to COVID. Representatives from the finance ministries and central banks of China, India, Russia, Pakistan, Kyrgyzstan, Tajikistan and Uzbekistan attended the Moscow conference. In addition, Iran, Afghanistan, Belarus, and Mongolia were also present as observer nations.

During the meeting, Russia’s Foreign Minister Sergey Lavrov suggested that "each SCO member decide whether they want to use the dollar for transactions, but facts are enough that this currency is unreliable".

The currency roadmap was also agreed upon at the  15 July 2022 meeting of the SCO countries’ industry ministers in Tashkent, as well.

The SCO is the largest regional organisation in the world in terms of geographical coverage and population, covering three-fifths of the Eurasian continent and nearly half of the human population. The new measure will contribute to the stability of monetary systems and the security of the financial activities of the SCO  countries.

Retaliation Against the US War

Former US President Donald Trump had deeply weaponised the dollar during COVID and trade with China was labelled a ‘war’. There have been unilateral sanctions placed on perceived threats and ‘enemy' countries. Countries like China, at the receiving end, have been preparing to hit back, and now it has become a reality.

Trump used sanctions and stopped Russian companies like Rusal Aluminium from accessing the dollar-based financial system in 2017 and then on Rosneft Oil in 2020. Since then the US has had over 30 active financial-and trade sanctions that cut access to the Federal Reserve that have severely destabilised and targeted weaker economies like Iran, Iraq and Venezuela. Trump tried to pressurise the IMF not to assist Iran with the COVID relief package.

As a consequence, all these countries established linkages with China and Russia for trade and economic sustainability. Russia is selling Venezuela’s crude oil. China diverted Iranian crude with Yuan payments and initiated the Iran-China silk route agreements. China is now Iran’s largest trade partner. Iran has diversified trade with Afghanistan and oil for gold with India.

China and Russia have several measures already as cross-border inter-bank payment systems parallel to SWIFT. Both have increased gold holdings to back their currencies and initiated national currency swap agreements in several regional and bilateral arrangements where they play a role.

The BRICS’s New Development Bank, proposed disbursements in national currencies in 2015. In the April 2020 annual board of governors meeting with BRICS finance ministers, the president of the bank K.V. Kamath said that in 2019, a quarter of the USD 15 billion of financial assistance was given in local currencies. He said that BRICS had no intention of destabilising the dollar but  “50 per cent (of projects) should be local currency financed”.

China is reducing its share in US treasury bonds and preparing for currency swap facilities as part of the Belt and Road Initiative (BRI) and in the Regional Comprehensive Economic Partnership with South-East Asian countries. Most of the ASEAN countries are ready for this.

Russia, previously a top holder of US sovereign debt, has radically decreased its holdings because of sanctions. Russia’s strategic relations with China deepened after the 2014 partnership and energy-centred agreements. In 2017, Ruble-Yuan's‘ payment versus payment’ started along the BRI. In 2019, the two countries switched to the Yuan RMB and Ruble in exchange for their USD 25 billion trade.

Russia has been pushing for currency swap agreements with various trade partners. The Eurasian Economic Union with Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia comprises the ‘road’ part of the BRI. With a population of 183 million and a GDP of some US$ 5 trillion, 70%  of its trade is in Rubles and local currencies. Several Central and West Asian countries want to join this union and Vietnam already has a full trade agreement with them. This saves the exchange charges of the dollar.

Russia revived trade in national currencies that were earlier used during the Soviet period within the communist bloc and with India. This exchange ended with the disintegration of the Soviet Union. 

In 2019, India switched again to Ruble payments for Russian S-400 defence systems because of US sanctions on Moscow. India worked out local currency trade with the UAE and approved USD 75 billion currency swaps with Japan and USD 400 million currency swaps with South Asian countries. India notified non-dollar-mediated rates of exchange for Turkish and Korean currencies. Turkey is trading in national currencies with China and Russia. Russia proposed trade in Euros with the EU.

China is internationalising the Yuan RMB which is included in the IMF basket, has risen to fifth place as a global currency and represents 15% of global currency holding. Russia has 25% of Chinese RMB international reserves.

The US Debt and Shadow Banks

The problem remains that the Yuan is not presently liquid enough for financial markets. So currency will be diversified with no currency maintaining complete hegemony.

Financial markets are complex and the US dollar is still the preferred currency. But countries have followed the contradictions within US policies – like raising debt ceilings to sustain the dollar as a global currency and even concealing lending to certain foreign banks – and have decided they need to protect themselves from this militarised dollar.

The debt ceiling is the maximum amount of money that the United States can borrow cumulatively by issuing bonds. If U.S. government national debt levels bump up against the ceiling, the Treasury Department must resort to other "extraordinary" measures to pay government obligations and expenditures until the ceiling is raised again.

The debt ceiling has been raised or suspended numerous times over the years to avoid the worst-case scenario, which would be a default by the U.S. government on its debt.

There has been controversy over whether the debt ceiling is constitutional. According to the 14th Amendment of the Constitution, "the validity of the public debt of the US, authorized by law...shall not be questioned." The majority of democratic countries do not have a debt ceiling, making the United States one of the few exceptions. The approximate amount of the current U.S. debt ceiling is $ 31.4 trillion, as set by the Congressional vote on 15 December 2021, and signed into law by President Biden on December 16 of the same year. The sum represents a $2.5 trillion increase in the ceiling.

Hitting the debt limit and failing to pay interest payments to bondholders would have grave economic consequences. The United States government would be in default, lowering its credit rating and increasing the cost of its debt. This would throw the U.S. economy into a tailspin.

Another worry for the US is shadow banking- it symbolizes one of the many failings of the US financial system leading up to the current financial crisis.  It is referred mainly to nonbank financial institutions that engaged in what economists call maturity transformation. Commercial banks engage in maturity transformation when they use deposits, which are normally short term, to fund loans that are longer term. Shadow banks do something similar. They raise  (mostly borrow) short-term funds in the money markets and use those funds to buy assets with longer-term maturities. But because they are not subject to traditional bank regulation, they cannot—as banks can—borrow in an emergency from the Federal Reserve (the US central bank) and do not have traditional depositors whose funds are covered by insurance; they are in the “shadows.”

There are now myriad types of entities in the US, performing these intermediation functions, and they are growing all the time. During the financial crisis, investors became skittish about what those longer-term assets were worth and many withdrew their funds at once. To repay these investors, shadow banks sell assets. These “fire sales” generally reduce the value of those assets. 

But in the US, real banks were caught in the shadows, too. Some shadow banks were controlled by commercial banks and for reputational reasons were salvaged by their stronger bank parent. In other cases, the connections were at arm’s length, but because shadow banks had to withdraw from other markets—including those in which banks sold commercial paper and other short-term debt—these sources of funding to banks were also impaired. And because there was so little transparency, it often was unclear who owed (or would owe later) what to whom.

The share of the US dollar assets in the foreign exchange reserves of global central banks, a sign of the dollar's supremacy, dropped to 59 percent in the fourth quarter of 2020 - a 25-year low, the IMF reported last May. The share further dropped to 58.88 percent in the first quarter of 2022, IMF data showed.

Thus, because of the US crisis, the Chinese aphorism “hide your capability and bide your time” has become popular in much of Eurasia’s national currency transitions. President Biden's absurd declaration that COVID is over, makes it clear that the economy is also sick.

© Ramachandran