Playing good cop and bad cop, French president Emmanuel Macron and European Commission chief Ursula von der Leyen flew into Beijing last Wednesday. The duo’s visit to China (April 5 – April 8) was supposed to present a united European front to pressure Beijing on several issues, including using Chinese influence to condemn Russia and end the Ukraine War.

 

Days before her arrival, Ms von der Leyen, known as the “bad cop from Brussels”, had criticizedChinese president Xi Jinping for maintaining his friendship with Russian president Vladimir Putin. She also warned the red dragon not to send weapons to Russia, or it would “significantly” affect China’s ties with the European Union. She actually believed she could threaten China.

 

Hilariously, she had even lectured Xi about the sensitive issue of Taiwan, demanding that the island not to be attacked. Known for her role as the messenger girl of Washington and NATO, Ursula has pushed the EU to limit Chinese access to sensitive technology and reduce reliance for key inputs such as critical minerals, as well as batteries and other clean tech products.

However, China was not born yesterday. President Xi Jinping openly dismissed European Commission President Ursula von der Leyen’s warning not to “change the status quo” over Taiwan. And the Chinese leader said he will call Ukrainian President Volodymyr Zelensky, as requested by Macron and von der Leyen, only when the conditions and time is right.

 

In fact, it was not rocket science to tell that her trip to China would end up in failure. Beijing did not actually invite Ursula. She had shamelessly piggybacked on Macron’s visit after the French president was invited for the three-day state visit to China. Macron, on the other hand, has his own agenda after France criticized German Chancellor Olaf Scholz for going solo to China late last year.

 

Beijing saw the cracks in Europe’s alliances long before Macron and Ursula flew to China. Last November, the German chancellor quietly met the Chinese president to ensure cosy relations with China will remain stable for Germany Inc. Scholz was concerned of Europe’s largest economy after chemical giant BASF relocated part of its business activities away from Europe to China.

Stunningly, Scholz said Berlin’s goal was not to “decouple” its industry from China and also echoed warnings from his predecessor Angela Merkel that the U.S. should not start a new Cold War against China. He said Beijing’s rise did not justify “the calls by some to isolate China.” His visit, the first G7 leader visiting China since the outbreak of the Covid pandemic, has led to a scramble by EU leaders to also visit Beijing.

 

But what made Macron furious was that he had proposed to Scholz to travel jointly to China with their respective business delegations, only to see the German chancellor made the trip alone. Not only Scholz met with both President Xi Jinping and Premier Li Keqiang, his delegation included 12 German industry titans, including the CEOs of Volkswagen,  Siemens, Deutsche Bank and BASF.

 

Like Scholz’s “Germany First” trip to China, Macron travelled with a 60-strong business delegation, including Airbus, Alstom and nuclear giant EDF – hoping to sign lucrative business deals. The French president admitted he wanted to “relaunch a strategic and global partnership with China”, with the goal to boost France’s trade links with the world’s second-largest economy.

Yes, it’s all about business and economy, but disguised as a trip to dissuade Xi Jinping from supporting Russia’s invasion of Ukraine. Besides, the French still remember how they were betrayed by the U.S. and U.K. when both allies stole a €35 billion submarine deal from Australia in the AUKUS alliance. Many analysts in China see France as a stronger partner in Europe than Germany or the EU as a bloc.

 

So, when President Macron’s plane touched down, he was personally welcomed by Chinese Foreign Minister Qin Gang. But when European Commission President Ursula von der Leyen arrived in Beijing later on the same day, she got the Ecology Minister. Macron was also given the full red-carpet treatment, and greeted by military parades and cannons salute on Tiananmen Square.

 

Ursula, on the other hand, had to enter China via the regular passenger exit. As Beijing was having fun playing divide-and-conquer game with the two European leaders, Xi Jinping hosted a lavish state banquet on Thursday night for Emmanuel Macron. Ignored and left alone, Ursula was reduced to giving a sober press conference at the EU delegation’s own headquarters.

On Friday, the French president spent his final day having tea with counterpart Xi Jinping in Guangzhou, the manufacturing megacity. Both spent 6 to 7 hours together before having another dinner. The EC president had to leave home on a commercial flight. While Chinese state media trumpeted the Sino-French relationship, social media demonized Ursula as an American puppet.

 

China gives top priority to member states of the EU rather than the 27-nation bloc itself. That’s why the Chinese president greeted the French president with smiles and a handshake at the Great Hall of the People, while the EC chief was nowhere to be seen. She would only join later for meetings. Beijing treated the EU as if it didn’t exist, or does not deserve the Chinese attention.

 

The best part was Macron’s interview with two French journalists on board France’s Air Force One on his way back after the 3-day visit. He said Europe must reduce its dependency on the U.S. and avoid getting dragged into a confrontation between China and the U.S. over Taiwan. He emphasized the “strategic autonomy” for Europe, presumably led by France, to become a “third superpower.”

Interestingly, Macron’s strategic autonomy received endorsement from Beijing. He said the “great risk” facing Europe is that it “gets caught up in crises that are not ours, which prevents it from building its strategic autonomy.” Telling the journalists, he said – “The paradox would be that, overcome with panic, we believe we are just America’s followers.”

 

Aboard COTAM UNITÉ, Macron  said in the interview – “The question Europeans need to answer – is it in our interest to accelerate a crisis on Taiwan? No. The worse thing would be to think that we Europeans must become followers on this topic and take our cue from the U.S. agenda and a Chinese overreaction.” But the biggest bombshell was his remark on de-dollarization.

 

After highlighting that Europe was too dependent on the U.S. for weapons and energy, the French president has suggested that Europe needs to reduce its dependence too on the “extraterritoriality of the US dollar.” He said – “If the tensions between the superpowers heat up, we won’t have the time or the resources to finance our strategic autonomy and we will become vassals.”

President Macron was not alone in joining the bandwagon of China and Russia to ditch the dollar. Former Goldman Sachs chief economist Jim O’Neill, for example, is encouraging five leading emerging economies of BRICS bloc – comprises Brazil, Russia, India, China and South Africa – to expand and challenge the dominance of the U.S. dollar. He has his own reason to promote de-dollarization.

 

Writing in a paper published in the Global Policy journal, O’Neill, a former chairman of Goldman Sachs Asset Management, said – “The U.S. dollar plays a far too dominant role in global finance. Whenever the Federal Reserve Board has embarked on periods of monetary tightening, or the opposite, loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic.”

 

O’Neill, a former UK Treasury minister and a British economist best known for coining the BRICS acronym, said the dollar’s dominance destabilizes other nations’ monetary policies whenever the U.S. raises or cut interest rates. This can be seen when the Fed aggressively hikes its key policy rate from around zero to a range of 4.75%-5% to tame inflation, and in the process affect the world.

Hence, he sees the dollar’s dominance as a burden to the nations with dollar-denominated debt since their monetary policies are destabilized when exchange rate fluctuations. O’Neill says BRICS should be expanded to create a fairer, multi-currency global system by including emerging nations such as Mexico, Turkey, Egypt, Indonesia, Bangladesh, Vietnam, Pakistan and the Philippines.

 

China is already in full steam to do just that, leveraging on BRICS and other trading partners to dump the dollar. The move by the U.S. and Western nations in imposing economic and financial sanctions against Russia in response to its invasion of Ukraine, which saw big Russian banks banned from SWIFT followed by freezing – even seizing – of Russia’s US$630 billion of foreign reserves, has backfired.

 

On March 30, Brazil announced a deal with China to ditch the U.S. dollar when paying each other for goods. The deal will enable China, the top rival to American economic hegemony, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly – exchanging Yuan for Real and vice versa instead of going through the greenback.

But de-dollarization was not confined to merely BRICS members. In another astonishing move, the Shanghai Petroleum and Natural Gas Exchange announced on March 30 that it completed its first Yuan-settled trade for liquid natural gas (LNG) between China’s National Offshore Oil Corporation and France’s TotalEnergies. Yes, even France has begun using the Chinese currency.

 

The first-ever deal in the Renminbi Yuan currency between the Chinese and French energy companies involved 65,000 tons of LNG imported from the United Arab Emirates (UAE). The trade marks a major step in Beijing’s attempts to challenge the “petrodollar” with the alternative “petroyuan”, something which China introduced in 2018 to give the U.S. dollar a bloody nose.

 

Using Yuan is not the only way to dump the U.S. dollar. Brazil and Argentina have discussed the creation of a common currency for the two largest economies in South America. The UAE and India are in talks to use Indian Rupees to trade non-oil commodities in a shift away from the dollar. Trade between India and Malaysia can now be settled in the Indian currency too. They are all de-dollarization.

 

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April 10th, 2023 by financetwitter

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