China is beginning to exert its influence in the world of global currency, according to reports Thursday by The Wall Street Journal, The Straits Times and AFP.
Beijing this week has struck a deal with Brazil to trade in the currencies of the two countries, according to The Straits Times, quoting the AFP news agency.
The agreement was reached initially in January and subsequently inked this month after a high-level China-Brazil business forum in Beijing.
Earlier this month, Israel criticized Brazil’s decision to grant berth in Rio De Janeiro to two Iranian warships in spite of US opposition and urged its government to send them away. Israeli Foreign Ministry spokesperson Lior Haiat called the Brazilian berth for the Iranian warships “a dangerous and regretful development.”
Beijing has become Brazil’s biggest trading partner, however. In 2022, China and Brazil saw a record US $150.5 billion in bilateral trade.
The agreement means Brazil will not use the US dollar as currency in its massive trade and financial transactions with China. Instead, the two countries will directly exchange the Chinese yuan for reais and vice versa.
The transactions will be executed by the Industrial and Commercial Bank of China and Bank of Communications BBM.
But Brazil is just the start of what become a global economic tsunami, as China begins to exert its influence in the global currency market.
Beijing is now also working to convince oil behemoth Saudi Arabia as well to price at least some of its oil sales in Chinese yuan, rather than in US dollars.
China Tightens Ties with Saudi Arabia
The negotiations have been taking place over the past six years, but suddenly leaped ahead this year as Riyadh’s anger with Washington accelerated.
According to the US Energy Information Administration, the US has significantly reduced its daily imports of Saudi oil in recent years, dropping from a high of two million barrels of Saudi oil to less than half a million barrels a day by December 2021.
But China has proved to be a reliable customer. Saudi Arabia has become Beijing’s top supplier, expanding its crude exports to China to 1.76 million barrels daily.
Saudi Arabia is not happy with the US choice to drag its feet over intervention to curb Iran’s influence in the Yemeni civil war, and its attempts to revive the moribund JCPOA nuclear talks with Tehran.
In both cases, Washington has proved to Riyadh that America is no longer a reliable ally, as it did when the order was given to abandon Afghanistan, leaving millions of dollars’ worth of military equipment to the Taliban.
Under the administration of President Joe Biden – who said Riyadh should be a “pariah” for the 2018 murder of Saudi journalist Jamal Khashoggi – the diplomatic relationship between the two countries is faltering as well.
Meanwhile, China’s influence in the Middle East is growing by leaps and bounds, but its economic prowess has been reduced, at least in part, by the US sanctions on Iran – over its nuclear program – and on Russia over its invasion of Ukraine.
Beijing buys more than 25 percent of Saudi Arabia’s oil exports – and Riyadh is paying attention. Saudi Arabia exports approximately 6.2 million barrels of crude daily. About 80 percent of those sales are carried out in dollars – Riyadh has been trading oil exclusively in dollars since 1974 – but that may now change.
China has been investing in projects like Riyadh’s futuristic new desert city, Neom, and has been helping Saudi Arabia build its own ballistic missiles.
Moreover, Beijing has long been a global nuclear power, and now is sharing its expertise with Riyadh, which has reciprocated by extending an invitation to China’s President Xi Jinping to visit this year.
Talks with Aramco (the Saudi Arabian Oil Company) are continuing over future contracts to be priced in yuan, the currency of China. If the deal goes through, future oil contracts would be priced in “petroyuan.”
China’s Complicated Relationship with Israel
China and Israel have maintained diplomatic relations for more than 30 years, and as the decades have passed, economic ties have advanced.
But Israel’s relationship with China is complicated by Israel’s “unbreakable bond” with Washington, and China’s cozy relationship with Iran.
Bilateral trade between China and Israel stood at $23.57 billion as of December 1, 2022, indicating a 15.7 percent year-on-year growth.
In particular, Chinese vehicle exports to Israel has skyrocketed, increasing by 276 percent last year, according to the Globes business news site, reaching eight percent of all vehicle deliveries to Israel.
As of January 2023, China had become Israel’s largest trading partner in Asia, and second largest in the world. China is also Israel’s largest source for goods imports.
The two countries are continuing talks on a Free Trade Agreement, with a deal expected to close sometime this year. When that agreement is signed, Israel will eliminate its seven percent customs tax on Chinese vehicle exports to the Jewish State.
Nevertheless, Israel has become increasingly cautious in allowing Chinese involvement in its critical infrastructure and high-tech sectors, but it’s a decision that has come a bit late.
China’s Shanghai International Port Group (SIPG) built – and owns – the new private SIPG Bayport Terminal at Haifa Port, inaugurated in September 2021. SIPG has a 25-year management contract to run the facility, which has the capacity to process one million shipping containers annually, but employs only about 100 people to run its extensive automated facilities.
A Chinese company also operates a cargo terminal in the Port of Ashdod.
After Israel put the brakes on China’s investment in its ports, India’s Adani Group – which outbid companies from China and Turkey — completed its purchase of the original Port of Haifa in January 2023.
Even before the ports were penetrated, China took control over Israel’s largest food company, Tnuva, with the 2015 purchase by China’s Bright Dairy & Food Company Ltd. of 76.7 percent – a controlling chunk – of shares in the company.
According to Israel’s Institute for National Security Studies (INSS) at Tel Aviv University, China has been involved in at least 463 investments, mergers and acquisitions in the Jewish in the period from 2002 to December 2020. Some of them have come close to creating a national security risk.
Disturbingly, Israel’s trade balance with China has also been negative, in favor of Beijing.
Israel’s main exports to China (51 percent) are in the electronic components sector, primarily chips manufactured in the Jewish State sent for QA and assembly in China. Other exports include instruments and industrial control systems (8 percent), chemicals (8 percent) and medical equipment (7 percent).
China’s main investments in Israel are in the technology sector (449 deals at a reported value of $19.44 billion).
Eight of the deals are in the infrastructure sector, valued at $5.92 billion. Of those, four are transportation, two in the ports and two in the electricity sector, all made by Chinese government-owned companies.
China also closed one deal in agriculture and real estate (the acquisition of Tnuva) and one in the minerals sector (the acquisition of Adama), two investment deals in academic institutions – Haifa’s Technion Institute of Technology, and Tel Aviv University — plus one in cosmetics with the acquisition of Israel’s iconic Ahava company, and one in textiles with the acquisition of Bagir.
A full report on Chinese investments and acquisitions in Israel can be accessed by clicking here.
A National Security Risk?
While China has gradually increased its investments and acquisitions in Israel, some of that activity has slowed, perhaps in part because the American government has opposed its role in Israel’s critical infrastructure – such as the tender for the Sorek 2 desalination plant, which eventually was won by a non-Chinese competitor.
The US has expressed concerns in particular about Chinese investments in Israel’s technology sector, and its infrastructure sector, due to national security concerns.
Israel has created a number of governmental bodies to oversee foreign investments into these and other areas, including a foreign investment oversight committee.
China’s growing ties with Iran and Russia, plus its more recent nuclear consultations with Saudi Arabia, make it clear that Israeli government oversight of investments and acquisitions by Beijing is key to preventing a national security risk to the Jewish State, apart from a similar risk to American interests.
But China’s growing economic outreach elsewhere in the world is making it clear that it’s not just Israeli national security that is at stake.