China’s nuclear option

Sep 07, 2019 Editorial

---

A war looms out there. A trade war between the aging American superpower, struggling to come to grips with its many internal demons, and the upstart new Chinese teenager that overpowers all in its path. And unlike before, no matter how small that war, the once quaint world of Guyana will feel the pinch in an interconnected world, and given its relationship with one and the other.
On August 13, Oil.com warned that China was preparing its “nuclear option in trade war.” Part of the dragon’s swishing its powerful tail in signaling the independence of breaking ranks, is its engagement in three strategically significant Iranian projects. These form part of the Chinese leadership’s proven determination to operate beyond the restraints of American sanctions and with its own interests in mind, as well as addressed.
According to Oil.com, “China…was loathe to completely disregard all U.S. sensibilities when it came to Iran, but equally saw itself as a longstanding partner of the Islamic Republic…to ensure diversity of energy supply.” A safe, self-protecting move.
More specifically, the “third of China’s major as yet unfinished projects in Iran was the build-out of the Jask oil export terminal, which…does not lie within the Strait of Hormuz or even in the Persian Gulf, but rather in the Gulf Of Oman.”
By this action, China was giving notice of its separation from the vulnerabilities and tensions that plague the geography and rivalries of that turbulent region. It is of a destiny increasingly unattached to that of the West in general, and the United States in particular.
This was only the opening salvo. And with a trade war hot then warm and hot again, there is growing impatience with the impasses and pains felt.
The main artillery is with the Chinese in having what is termed the ‘nuclear option.’ That is, “selling all or a significant part of its US$1.4 trillion holding of U.S. Treasury Bills.” That would be a momentous step; yet not one to be moved off the table of consideration. Some of the implications of such sure-to-be roiling action should help.
What the Chinese now hold (US$1.4 trillion of Treasury Bills) is, “that through which the U.S. finances its economy and is an important factor both in the value of the dollar and therefore in the health of U.S. international companies especially – and has been used as a bargaining chip before by China, especially when it feels threatened.”
It feels threatened and bullied now, and it is not the nation of a hundred years ago, where dreadful ‘foreign devils’ humiliated the nation and laid it to waste in significant sections.
Now in this trade war, and as the US economy goes, so does a lot of the rest of the world. There is greater reliance on Uncle Sam than the other way around. Like it or not, and diversification and globalisation duly accounted for, the health of the US economy -buying and spending, currency and valuation, and the many other vital components – still influence the health of other places. Those places depend upon its patronage, guiding hand, and benevolence. Guyana is in the thick of that pack, if only as an outlet for its peoples, its interest, and its protection. And, of course, now for its corporate oil investment; company and country are not separate.
The mandarins are aware of the power (and threat) that they possess, as “senior Chinese figures at various state-run think tanks…stated that the large-scale selling of this massive Treasury Bill holding would trigger a dollar crash, a huge spike in bond yields, the collapse of the housing market and stock market chaos.” That is a nightmare scenario for American leaders. With emphasis on the supremacy of the dollar, it is apposite to note that Chinese leaders have articulated interest and intent to topple the dollar from its longstanding perch as the big bully around town.
The prevailing sentiment is that this nuclear option will not be unleashed: there is too much at stake and that could come back to bite sharply and deeply. Meaning that such unloading of US Treasury holdings would squeeze the Yuan upward. This is something that would not work in Beijing’s favour.
According to the experts, “Beijing would need to be re-invested the proceeds in alternative securities” since there are limited blue chip options available for the kind of money freed from US Treasury holdings. Unlike its main adversary, the Chinese are not known for either the impetuous or frivolous, nor the boisterous and raucous. They do what is right for themselves. What is right for them could end being very troublesome for Guyana. The timing is inopportune.
As these big power rage and rise, the urgent challenge is for Guyana to plot a national course that capitalises early on its now proven holdings; to get its own options firmly nailed down and which serves national purposes foremost. The continued cautioning is that this country must not be caught jawing away, with its pants down. It is not listening. It must prepare to seize the moment. It doesn’t appear to be ready.
Guyana has its own nuclear option: race. It fiddles with that firestorm aimed internally. Leaders and society had better be prepared for the fallout from that double-edged sword, this nuclear option of our own. Like the leadership trusts of the two global powers, local leaders and their groupings are also faced with that option and a choice: compromise or confrontation and conflict.

---

---