China in the Shadows

[touchring]

Re: China in the Shadows

They flood the world with even cheaper goods.

Not the rest of the world but to the US, since the dollar is appreciating against all currencies.

[ProdigyofZen]

Re: China in the Shadows

What happens if PBoC breaks the peg?

Chinese depression as there is a giant sucking sound leaving Chinese markets, IMO.

[ProdigyofZen]

Re: China in the Shadows

What do you put the odds of that as being? How much longer/deeper would the decline need to be for that to be the likely way out?

With the way they are cutting interest rates it could be quicker than I anticipated. I don't see it as a way out I would see it as a catastrophic policy mistake.

What happened the last time the two world powers dominated financial markets and made economic policy mistakes for the greater part of 10 years? (England and the US).

[don]

Re: China in the Shadows

Shanghai Cooperation Organization turns Pan Asian

BY SERGEI BLAGOV on JULY 11, 2015 in ASIA TIMES NEWS & FEATURES

The Shanghai Cooperation Organization (SCO) finally delivered on its earlier pledges to enlarge the grouping. The organization — that currently includes Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan — accepted major South Asian nations thus moving towards a new reincarnation of Pan-Asianism.

The organization that originated from bilateral border talks between China and the former Soviet Union now becomes truly multilateral. At the summit meeting in Ufa on July 10, Russia approved entry of India and Pakistan into the SCO. The SCO apparently aimed to strengthen the grouping by inviting the subcontinent’s major states.

In his summing up remarks, President Vladimir Putin said the upcoming accession of India and Pakistan into the SCO would help the organization to face current challenges and threats. For the first time in its 15-year history, the SCO made a decision on its enlargement, he said.

Putin also noted the interest of several nations of South Asia, South-East Asia and the Middle East in gaining the status as SCO dialogue partner and observer nation.

In the meantime, Belarus’ status was raised from a dialogue partner to an observer nation, while Azerbaijan, Armenia, Cambodia and Nepal became SCO’s dialogue partners.

The summit also approved the SCO development blueprint till 2025 that prioritizes regional stability and conflict resolution, Putin said. The summit discussed the Islamic State threat in Afghanistan and adopted another blueprint, Cooperation Program to Counter Terrorism and Separatism in 2016-2018, he said.

In their joint statement, the SCO leaders called for settlement of political crises in the Middle East and North Africa without “outside interference.”

The next SCO summit meeting is due in Tashkent in 2016, and Uzbekistan assumed the SCO’s rotating presidency.

However, the SCO seems to remain undecided about Iran’s membership. Answering a direct question about the SCO’s further enlargement plans, Putin noted Iran’s intention to join the organization but said the accession of India and Pakistan should be completed first before accepting other new members.

Moscow has long argued that the SCO expansion would serve to strengthen its international status. However, ahead and during the summit meeting, Russian officials have been careful to avoid confrontational rhetoric.

The SCO is not directed against any third party, Valentina Matviyenko, speaker of the Federation Council, the upper house of the Russian parliament, said on July 8. She added that India and Pakistan are due to become full members of the SCO in 2016.

The SCO has long been seen as aiming to uniting Asian nations in their opposition to the perceived US expansionism. However, the grouping remained reluctant to be seen as a military body in-the-making. On July 7, the SCO Secretary General Dmitry Mezentsev said the SCO would not be transformed into a military bloc.

The SCO was preceded by bilateral border talks between China and the former USSR. When the Soviet Union disintegrated, China faced four negotiating partners: Russia, Kazakhstan, Kyrgyzstan and Tajikistan. So the SCO’s predecessor was formed as a five-member ‘Shanghai Five’ group in 1996. The SCO was formally created on June 15, 2001 in Shanghai and Uzbekistan joined the grouping.

From January 1 2004, the SCO started operations as a full-fledged international organization. From 2004, the SCO had a secretariat in Beijing and a Regional Anti-Terrorist Force in the Kyrgyz capital of Bishkek.

Almost since its inception, the SCO has been eyeing enlargement. India has been touted as a potential candidate to join for more than a decade. India’s joining in could raise the SCO’s significance, Putin stated back in 2002.

The grouping has long prepared itself for accepting new member countries. The SCO in Tashkent in 2010 approved rules on accepting new member-states. According to the rules, the SCO new members must be Eurasian nations, have diplomatic relations with all current member states, and have either observer or dialogue partner status. However, the rules stipulate that would-be member countries must not be subject to UN sanctions, and not be involved in any armed conflict.

In 2011, Russian officials argued that the SCO was reluctant to accept India and Pakistan as full members due to the continued territorial dispute between them. But later Moscow appeared to change its position by indicating interest in the SCO membership of India and Pakistan despite their differences.

Moscow’s increased interest in the SCO is hardly surprising against a backdrop of Russia’s continued acrimony with the West over Ukraine. The Kremlin apparently prioritizes the SCO and BRICS as means to counter perceived Western attempts to isolate and marginalize Russia.

The upcoming entry of India and Pakistan is also set to change the balance of power in the SCO, the organization previously dominated by China, economically and politically. And the possible entry of new members from South-East Asia and the Middle East has a potential to turn the SCO into a truly Pan-Asian body in the future.

In the past, the SCO member states advocated increased trade, the introduction of new international currency and the regional unified energy system. There were also calls to create the SCO’s currency based on the gold standard. However, all these plans remained slow to materialize.

Therefore, the latest SCO top-level meeting came to indicate the grouping’s increasing global ambitions. But it remains to be seen whether the organization will be able to expand its international clout and evolve into a new form of Pan-Asianism.

[GRG55]

Re: China in the Shadows

What happens if PBoC breaks the peg?

It will compromise and set back China's efforts to have the renminbi more widely recognized as a global trading currency, and inclusion in the currency weighting of the IMF's Special Drawing Rights (SDR).

These appear to be the primary reasons the PBOC and Beijing have been holding the peg. But the pressure is mounting, and the many "China miracle" years of corruption driven capital misallocation are coming back to bite.



A "market" that bans transactions is not a market:

China Bans Stock Sales by Major Shareholders for Six Months

July 8, 2015 — 6:10 AM MDT

[Bloomberg] China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, its latest effort to stop the nation’s $3.5 trillion stock-market rout...

...While China has already ordered government-owned institutions to maintain or boost their stock holdings, the CSRC’s directive expands the ban on sales to non-state companies and potentially foreign investors who own major stakes in mainland businesses. Regulators have unveiled market-boosting measures almost every night over the past 10 days, steps that have so far failed to revive investor confidence. Foreign traders sold Chinese shares at a record pace this week in part due concerns over the government’s meddling in markets.

“It suggests desperation,” Mark Mobius, chairman of Templeton Emerging Markets Group, said by phone Wednesday. “It actually creates more fear because it shows that they’ve lost the control.”...

...Chinese authorities have also suspended initial public offerings, restricted bearish bets via stock-index futures and encouraged financial firms to buy shares. In perhaps the most dramatic effort to prevent investors from selling, local exchanges have allowed at least 1,331 companies to halt trading in their shares...

[GRG55]

Re: China in the Shadows

Shanghai Cooperation Organization turns Pan Asian

BY SERGEI BLAGOV on JULY 11, 2015 in ASIA TIMES NEWS & FEATURES

The Shanghai Cooperation Organization (SCO) finally delivered on its earlier pledges to enlarge the grouping. The organization — that currently includes Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan — accepted major South Asian nations thus moving towards a new reincarnation of Pan-Asianism.

...

LOL. With the exception of China every single one of these nations has a single Ruling Family with a patriarch President for Life (or in the case of Russia, someone aspiring to that). China, of course, has the "People's Party for Life". A real inspiration for how to organize global affairs for the benefit of the masses. Even the original name, "Shanghai Five", sounds like a group Marshall Matt Dillon would be sent to track down.

Managing this expanding crew should make running the EU look easy.

Edit added: [The thought did occur that with Clinton or Bush, perhaps the USA is only one step removed from its own Ruling Family and President for Life...]

[GRG55]

Re: China in the Shadows

They can try all they want but like I have stated before the PBoC is going to quickly find out that the Equity market is not the Real Estate market and is highly liquid.

With 80% of the "traders/investors" in China being individual investors it was ripe for a crash. I started my Chinese equity short back at the end of April, just a month early.

I bought the YANG 3x levered ETF at 5.89 before the reverse split up to 50. It is now trading at $106.

All the international investors are waiting for the carnage to stop before they buy in. That will be the time to buy.


.....

Well done!!!

[Southernguy]

Re: China in the Shadows

+1

[don]

Re: China in the Shadows

On Friday, alongside China's announcement that it had bought over 600 tons of gold in "one month", the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.



We then put China's change in FX reserves alongside the total Treasury holdings of China and its "anonymous" offshore Treasury dealer Euroclear (aka "Belgium") as released by TIC, and found that the dramatic relationship which we first discovered back in May, has persisted - namely virtually the entire delta in Chinese FX reserves come via China's US Treasury holdings. As in they are being aggressively sold, to the tune of $107 billion in Treasury sales so far in 2015.



We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention.

Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China's dramatic reserve liquidation

Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter.

JPM conclusion is actually quite stunning:

This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate (Figure 2).

Incidentally, $520 billion is roughly triple what implied Treasury sales would suggest as China's capital outflow, meaning that China is also liquidating some other USD-denominated asset(s) at a feverish pace. So far we do not know which, but the chart above and the magnitude of the Chinese capital outflow is certainly the biggest story surrounding the world's most populous nation: what is happening in its stock market is just a diversion.

At this point JPM goes into a tangent explaining what the practical implications of a massive capital outflow from China are for the global economy. Regular readers, especially those who have read our previous piece on the collapse in the Petrodollar, the plunge in EM capital inflows, and their impact on capital markets and global economies can skip this part. Those for whom the interplay of capital flows and the global economy are new, are urged to read the following:

One way that slower EM capital flows and credit creation affect the rest of the world is via trade and trade finance. Trade finance datasets are unfortunately not homogeneous and different measures capture different aspects of trade finance activity. Reuters data on trade finance only aggregates loan syndication deals, which have mandated lead arrangers and thus capture the trends in the large-scale trade lending business, rather than providing an all-inclusive loans database. Perhaps the largest source of regularly collected and methodologically consistent data on trade finance is credit insurers (see “Testing the Trade Credit and Trade Link: Evidence from Data on Export Credit Insurance”, Auboin and Engemann, 2013). The Berne Union, the international trade association for credit and investment insurers with 79 members, includes the world’s largest private credit insurers and public export credit agencies. The volume of trade credit insured by members of the Berne Union covered more than 10% of international trade in 2012. The Berne Union provides data on insured trade credit, for both short-term (ST) and medium- and long-term transactions (MLT). Short-term trade credit insurance accounts for the vast majority at around 90% of new business in line with IMF estimates that the vast majority 80%-90% of trade credit is short term.



Figure 4 shows both the Reuters (quarterly) and the Berne Union (annual) data on trade finance loan syndication and trade credit insurance volumes, respectively. The quarterly Reuters data showed a clear deceleration this year from the very high levels seen at the end of last year. Looking at the first two quarters of the year, Reuters volumes were down by 25% vs. the 2014 average (Figure 4). The more comprehensive Berne Union annual volumes are only available annually and the last observation is for 2014. These data showed a very benign trade finance picture up until the end of 2014. Trade finance volumes had been trending up since 2010 at an annual pace of 8.8% per annum (between 2010 and 2014) which is faster than global nominal GDP growth of 6% per annum, i.e. the trend in trade finance had been rather healthy up until 2014, but there are indications of material slowing this year. This is also reflected in world trade volumes which have also decelerated this year vs. strong growth in previous years (Figure 5).

Summarizing the above as simply as possible: for all those confounded by why not only the US, but the global economy, hit another brick wall in Q1 the answer was neither snow, nor the West Coast strike, nor some other, arbitrary, goal-seeked excuse, but China, and specifically over half a trillion in still largely unexplained Chinese capital outflows.

* * *
But wait, because it wasn't just JPM whose attention perked up over the weekend. This morning Goldman Sachs itself had a note titled "the Curious Case of China's Capital Outflows":

China’s balance of payments has been undergoing important changes in recent quarters. The trade surplus has grown far above previous norms, running around $260bn in the first half of this year, compared with about $100bn during the same period last year and roughly $75bn on average during the previous seven years. Ordinarily, these kinds of numbers would see very rapid reserve accumulation, but this is not the case. Partly that is because China’s services balance has swung into meaningful deficit, so that the current account is quite a bit lower than the headline numbers from trade in goods would suggest. But the more important reason is that capital outflows have become very sizeable and now eclipse anything seen in the recent past.

Headline FX reserves in the second quarter fell $36bn, from $3,730bn at end-March to $3,694bn at end-June. While we estimate that there was a large negative valuation effect in Q1 (due to the drop in EUR/$ on the ECB’s QE announcement), there was likely a positive valuation effect in Q2, which we put around $48bn. That means that our proxy for reserve accumulation in the second quarter is around -$85bn, i.e. the actual “flow” drop in reserves was bigger than the headline numbers suggest because of a flattering valuation effect. If we put that number together with the trade surplus in Q2 of $140bn, net capital outflows could be around -$224bn in the quarter, meaningfully up from the first quarter. There are caveats to this calculation, of course. There is obviously the services deficit that we mention above, which will tend to make this estimate less dramatic. It is also possible that our estimate for valuation effects is wrong. Indeed, there is some indication that valuation-related losses in Q1 were not nearly as large as implied by our calculations. But even if we adjust for these factors, net capital outflows might conceivably have run around -$200bn, an acceleration from Q1 and beyond anything seen historically.

Granted, this is smaller than JPM's $520 billion number but this also captures a far shorter time period. Annualizing a $224 billion outflow in one quarter would lead to a unprecedented $1 trillion capital outflow out of China for the year. Needless to say, a capital exodus of that pace and magnitude would suggest that something is very, very wrong with not only China's economy, but its capital markets, and last but not least, its capital controls, which prohibit any substantial outbound capital flight (at least for ordinary people, the Politburo is clearly exempt from the regulations for the "common folk").

Back to Goldman:

The big question is obviously what is driving these flows and how long they are likely to continue. We continue to take the view that a stock adjustment is at work, although it is clear that the turning point is yet to come. We will look at this in one of our next FX Views. In the interim, we think an easier question is what this means for G10 FX. This is because this shift in China’s balance of payments is sure to depress reserve accumulation across EM as a whole, such that reserve recycling – a factor associated with Euro strength in the past – is unlikely to be sizeable for quite some time.

In other words, for once Goldman is speechless, however it is quick to point out that what traditionally has been a major source of reserve reflow, the Chinese current and capital accounts, is no longer there.

It also means that what may have been one of the biggest drivers of DM FX strength in recent years, if only against the pegged Renminbi, is suddenly no longer present.

While the implications of this on the global FX scene are profound, they tie in to what we said last November when explaining the death of the petrodollar. For the most part, the country most and first impacted from this capital outflow will be China, something its stock market has already noticed in recent weeks.
But what is likely the take home message for non-Chinese readers from all of this, is that while there has been latent speculation over the years that China will dump US treasuries voluntarily because it wants to (as punishment or some other reason), suddenly China is forced to liquidate US Treasury paper even though it does not want to, merely to fund a capital outflow unlike anything it has seen in history. It still has a lot of 10 Year paper, aka FX reserves, left: about $1.3 trillion at last check, however this raises two critical questions: i) what happens to 10 Year rates when whoever has been absorbing China's Treasury dump no longer bids the paper and ii) how much more paper can China sell before the entire world starts paying attention, besides just JPM and Goldman... and this website of course.

Finally, if China's selling is only getting started, just what does this mean for future Fed strategy. Because one can easily forget a rate hike if in addition to rising short-term rates, China is about to dump a few hundred billion in paper on a vastly illiquid market.

Or let us paraphrase: how soon until QE 4?

[don]

Re: China in the Shadows

In related news . . .

PBOC injects $31 billion into 2 Silk Road-related policy banks

BY ASIA UNHEDGED on JULY 22, 2015 in ASIA UNHEDGED, CHINA

The People’s Bank of China injected a combined $31 billion into two policy banks linked to the New Silk Road project, said inside sources.

The central bank converted $16 billion worth of foreign exchange loans to China Development Bank (CDB) into equity shares in the bank, according to sources with knowledge of the matter, reportedChinese news site Caixin. It did the same with $15 billion worth of forex loans to Export-Import Bank of China (Exim). This follows a similar trade in April, when the PBOC invested $32 billion in CDB and $30 billion in China Exim.

The central bank is now the biggest shareholder in China Exim and the third-largest shareholder in CDB, after the Ministry of Finance and Central Huijin Investment.

Both banks have been given the job of supporting the central government’s New Silk Road Economic Belt initiative. This project will build infrastructure to help increase China’s trade into two main directions, through Central Asia into Europe and through Southeast Asia to Africa.

While the number of shares wasn’t released, sources told Caixin that the central bank didn’t plan to keep them for long because of fears that supporting policy banks would cloud central bankers’ judgment on monetary policy.

Increasing policy banks’ capital so they can lend more is good for growth, but less so for the central bank when it comes to making monetary policy, one of the sources told Caixin. “In the long run, the central bank must be independent and fair.”

[don]

Re: China in the Shadows

Russia’s ‘energy pivot’ to China: Myth or reality?

BY AT EDITOR on JULY 22, 2015 in ASIA TIMES NEWS & FEATURES

By Michael Ruehle & Julijus Grubliauskas

Since the beginning of the Ukraine-Russia crisis, the Russian media has been arguing that Russia would shift its energy exports away from Europe to the East, in particular to China.

There are plenty of reasons why Moscow is pushing this narrative. Over the past years, Russia’s dominant position in the European energy market has suffered several severe blows: new natural gas interconnectors, better storage facilities and new import terminals for Liquefied Natural Gas (LNG) have made the Eastern half of the continent less dependent on Russian energy supplies.

At the same time, the EU has initiated antitrust cases against Gazprom, supported Ukraine through the ‘reverse flow’ of gas, and, after Russia’s illegal annexation of Crimea, imposed sanctions. Against this backdrop, it is hardly surprising that a frustrated Russia would be looking for less reticent customers elsewhere.

Alas, this ‘energy pivot’ is not likely to happen as advertised. While several major energy projects are currently being discussed between Russia and China, a closer look reveals that they will not constitute real alternatives but at best supplements to Russia’s European energy market. For a number of reasons, Europe will remain Russia’s primary destination for energy exports, in particular natural gas.

The flagship project of the emerging energy cooperation between Russia-China, the Power of Siberia gas pipeline, would provide China with 38 billion cubic metres (bcm) of gas. Yet even if the project were to deliver 61 bcm, it still pales in comparison with 146 bcm that Gazprom exported to Europe in 2014. Moreover, the gas fields that will feed the Power of Siberia pipeline are not located in Western but Eastern Siberia, thousands of kilometres away from the fields that feed the European gas pipelines. In other words, the Eastern gas fields are too remote to be commercially viable for exports to the European market in the first place.

Finally, China is not yet prepared to pay the gas price that some European countries are paying to Gazprom. In contrast to the Power of Siberia pipeline, the projected Altai pipeline to China would be fed by the Western Siberia fields, the same that provides gas to Europe. This project originated a decade ago but remained in limbo until it was surprisingly revived last year.

However, for several reasons, neither Russia nor China appears keen to actually start implementing the project.

First, the Altai pipeline would arrive from Russia at China’s largely deserted northwest, yet it is in the industrialized southeast where the gas is really needed. This would require China to build additional pipelines across the country.

Second, Russian gas in the eastern part of China competes with supplies from Turkmenistan, which have yet to reach their full potential. This Turkmenistan-option will allow China to negotiate a Russian price that would be lower than the European price level.

A third element of the Russian ‘energy pivot’ – Russian-Chinese cooperation on oil – should not raise much concern in Europe, since oil is a globally traded commodity.

Recent statements in the Russian media that Russia had become the largest supplier of oil to China, thus overtaking Saudi Arabia, are less spectacular than they may seem: they only mean that China is importing less oil from other suppliers, who will now compete for the European market.

Other elements of the emerging Russia-China energy relationship – cooperation on LNG and the exploration of Arctic energy resources – depend largely, and paradoxically, on Russia’s cooperation with Western industry. The development of Russia’s LNG export capability remains heavily dependent on its access to Western technologies, and the same goes for the energy exploration in the Arctic.

Before China can be the beneficiary of Russian LNG exports and tap into Arctic oil and gas resources, Russia needs Western technologies and investment, which are currently to a large extent subject to EU-US sanctions.

Even if Russia were able to access the required technologies, neither oil nor LNG produced in the Arctic would be able by themselves to solidify the Russia-China energy relationship: Both commodities can be traded on the global market, and it appears unlikely that China would limit itself to buying the rather expensive energy extracted in the Arctic without considering alternative suppliers.

In sum, Russia’s ‘energy pivot’ to China should not cause European energy consumers sleepless nights. Due to a series of infrastructure projects, European countries have increasingly more alternatives to Russian gas and oil and thus enjoy a strong negotiating position vis-à-vis Russia. No matter how much this may frustrate Moscow, stable energy revenues from Europe remain of critical importance to the Russian state budget, particularly in the current low oil price environment.

Accordingly, Russia continues to make every effort to strengthen its energy influence in Europe, from seeking bilateral deals with European energy companies to intensive lobbying. A real ‘pivot’ looks different.

The authors work in the Energy Security Section of NATO’s Emerging Security Challenges Division.

[don]

Re: China in the Shadows

Iran’s ‘Look East’ partners in a quandary

BY M.K. BHADRAKUMAR on JULY 31, 2015 in ASIA TIMES NEWS & FEATURES

At a meeting with the Chinese Foreign Minister Wang Yi at Beijing last week, Iran’s deputy foreign minister Ebrahim Rahimpour underscored that Tehran regarded China as its “most important strategic partner”.

While drawing attention to Iran’s independent foreign policies, Rahimpour also tweaked Iran’s ‘Look East’ policies, which date back to the previous presidency of Mahmoud Ahmedinejad.

Iran’s ‘Look East’ emphasized regional ties with all Asian countries. But China now outstrips other Asian partnerships in priority – Russia and India, in particular.
How did this happen? Didn’t China too come under US pressure – like Russia or India – to curb the relations with Iran? Yes, indeed.

China also caved in to the US pressure to stop its transfer of military technology to Iran – Washington going to the extent of threatening to supply arms to Taiwan in retaliation and Obama receiving the Dalai Lama in the White House. The US kept reminding China that Russia had already accepted the rules of the game drawn up in Washington, and Beijing had no choice but to follow suit lest it faced isolation within the UN Security Council.

But the amazing part is that trade figures tell a different story. If in 2009 the bilateral trade stood at $28 billion, by 2012 it had increased to $36 billion, galloping to $40 billion in 2013 and to $47.5 billion as of end of 2014.

In sum, while scrupulously observing the UN sanctions against Iran and avoiding any frontal confrontation with the US’ unilateral sanctions against Iran, China defied the US’ campaign to ‘isolate’ Iran.

Beijing took a pragmatic decision to exploit all available loopholes in the sanctions regime against Iran and push ahead the relationship with Tehran as optimally as it could.

Thus, a solid foundation exists today for China to switch to full-scale cooperation with Iran. China’s Silk Road strategies will phenomenally transform the partnership. China has committed to make investments in Iran to the tune of $52 billion within the ambit of the ‘Belt and Road’. Iran is set to play a pivotal role in China’s energy security, supplying gas and oil through routes that bypass the Straits of Hormuz and the Malacca Straits.

Historians will acknowledge the behind-the-scenes role China played in nudging the US and its European allies to realize that the policy of isolating Iran cannot succeed and would even be counter-productive and could seriously damage regional security while, on the other hand, an integrated approach of engaging Iran in a flexible way, combining demonstrative steps to offer economic incentives would produce better results.

In comparison, where did Russia and India go wrong?

First, while all three Asian giants succumbed to the US pressure and complied with the sanctions regime against Iran, China never accepted the sanctions as a limiting factor in the development of economic relations with Iran. It explored every avenue to sidestep the sanctions.

Russia and India, on the other hand, rested their oars and sought to play the ‘Iran card’ in their respective relationships with the US. In fact, Russia went back on previous commitments made to Iran regarding the S-300 missile system in an excessive zeal to please the US, while India was clever by half, hoping to extract concessions from the US during the negotiations over the 2008 nuclear deal while at the same time pinning Iran down to barter trade. (India today keeps $8.8 billion in ‘blocked funds’.)

Second, China kept up a steady momentum of exchanges with Iran, while Russia and India atrophied their contacts. Russia’s real contribution might have been that it held its hands from undermining the talks between Iran and the US. As for India, it was patently indifferent. The reactions in Russia and India to the nuclear deal have been more or less the same – sad or pessimistic, fraught with angst.

Russia could get hurt by the fall in oil prices, while India is anxious that Iran is an ambitious regional power that is bound to project its power in the Indian Ocean. Russia has reason to be uneasy that the Iranian elites in power today may seek close integration with the West. India worries about a likely surge in Iran’s relations with China and Pakistan.

Fundamentally, Russia and India faltered by viewing their relations with Iran through the prism of their relations with the US. On the contrary, China never took its eyes off the ‘Iran project’”.

Iran cannot but feel disappointed that Moscow has dragged its feet by taking a legalistic position regarding Tehran’s request for membership of the Shanghai Cooperation Organization.

A commentary carried by the official Iranian news agency noted last week that Russia exploited Iran’s weakness to conclude bilateral deals with Kazakhstan and Azerbaijan, which effectively decreased its share of the Caspian Sea to less than 10 percent. However, “conditions have changed” and from now on, “we [Iran] can play the Russian card. Gone are the times the Russians could play the Iran card”.

On its part, India’s hype in investing in Iran’s infrastructure and developing the Chabahar Port to gain an access route to Afghanistan and Central Asia has dissipated lately. Tehran is yet to receive a high-level delegation from Russia or India. Do not be surprised if President Xi Jinping were to travel to Iran in the near future on a historic visit to inaugurate a new vista of seamless Sino-Iranian partnership.

[dcarrigg]

Re: China in the Shadows

Do not be surprised if President Xi Jinping were to travel to Iran in the near future on a historic visit to inaugurate a new vista of seamless Sino-Iranian partnership.

They're not setting up their massive infrastructure trade-route investments like they are for lowest-cost or most-direct convenience of route...

And they didn't do it this way because they're stupid...

[don]

Re: China in the Shadows

The chief Chinese reservation with the water route:

The United States Navy is a powerhouse. The fleet consists of roughly 430 ships in active service or reserve. The vessels run the gamut from the massive Nimitz-class aircraft carrier, which stretches more than 1,000 feet, to the Los Angeles-class submarine that slithers 900 feet below the ocean surface.


This map from @Naval_Graphics on Twitter shows all the commissioned and noncommissioned ships of every size as of April 2015. The ships are organized by size, from the humongous aircraft carriers at the top to the smaller ships at the bottom. Take a look:

The biggest potential obstacle to the "New Silk Road" plan is it takes only one country along the route, bending to US pressure, to break the chain.

Can China, mimicking early US Cold War mutually beneficial trade agreements, gather enough global self interest/support, to ward off that happening?

There's a lot of pieces in that puzzle.

[Woodsman]

Re: China in the Shadows

This map from @Naval_Graphics on Twitter shows all the commissioned and noncommissioned ships of every size as of April 2015. The ships are organized by size, from the humongous aircraft carriers at the top to the smaller ships at the bottom. Take a look:

.

Save that graphic for your grandchildren and great grand kids when they ask "what happened, how did we get here?"

"Sorry kids, I think it was the 13th or 14th carrier battle group we built by 2025 that the did the trick."