Business strategy amid geoeconomics made a big
display recently in Riyadh when China issued USD Bonds amounting to 2 Billion
that was oversubscribed by 20 times. Here are key takeaways of this issue:
1. The issue in question was made by China after a
lapse of three years, a dual tranche, with duration 3 and 5 years and amounting
to USD 2 Billion, tradable both in Dubai & Hong Kong.
2. Riyadh as a location was carefully chosen as the issue can be easily sponged by petrodollars available in plenty on the one hand and promoting Riyadh as a financial centre, mindful of fact that the People's Bank of China and the Saudi Arabian Monetary Authority have signed earlier on 20th November 2023, a currency swap of US$6.98 billion for three years.
3. Behind this issue underlies a crafty business strategy of capitalizing quietly upon the petro yuan and to encourage its use. Needless to say Saudi Arabian officials are on record expressing willingness to accept the Chinese yuan as payment for crude on the eve of the visit of Premier Li Qiang's visit to the kingdom in September 2024.
4. Here is the masterful move. Once the bonds matures the proceeds in USD would follow back to America for which the Government there has no mirror facilities to utilize these. On the flip side of the coin, stands the inability of America to issue fresh USD dominated bonds of the same tenor and amount as the market stands saturated by this tranche.
5. Looking from the contrarian point of view it is not only America that can print USD, if the trend continues China would be able just to print US$ currency indirectly.
6. Solely, from the point of view of USD debt, China gets more and more opportunities to issue USD dominated bonds without ever coming under the purview of US monetary authorities. Consequently, excess supply of dollars take US inflation tads higher than what the Fiscal planners would have already planned to tackle.
7. In the medium run KSA and the Gulf monarchies would be dis-incentivised to park their funds in America as they have already a brightening market close home territory in Dubai & elsewhere in Mid-East region for investments.
8. Finally, in the long run China scuppers the ability of US administration issuing US debt instruments to finance among other things the policy of ‘forever war’ targeted against the global south. At this point China can deliver a double whammy by scaling down trade with USA that brings excess USD inflow into China and whatever Dollar funds raised via issue of bonds to be easily transferred into BRI projects worldwide.
In sum, Riyadh bond issue would go down in the history of geoeconomics as Sun Tzu style business strategy intend to take the daylight out of the embattled USA!
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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