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Brazil trades in Yuan, LNG traded in Yuan, Saudi's join SCO, Taiwan diplomacy falters, Philippines ratifies RCEP, Cambodia hosts SEA Games

Mar 30, 2023

UPDATE: Cooperation between central banks and participation of Brazilian bank in China’s payment system will facilitate transactions. Brazilian exporters will no longer need to use the US dollar for business transactions with China.

Saudi Arabia has agreed to join the Shanghai Cooperation Organization (SCO) as a “dialogue partner”, state media reported on Wednesday, the latest indication of closer political ties with China.

The Philippines Senate officially ratified the Regional Comprehensive Economic Partnership (RCEP) Agreement in February 2023, making the country the last signatory aside from Myanmar to conclude this free trade agreement.

Charlie Munger said Wednesday that Tesla pales in comparison to BYD in China, calling the Chinese electric vehicle maker his favorite stock ever. Berkshire initial investment is now “worth about $8 billion or maybe [$9 billion]. That’s a pretty good rate of return,” said Munger, Warren Buffett’s longtime investment partner.

Vietnam’s gross domestic product (GDP) in the first quarter of 2023 has grown by 3.32% year-on-year, the second lowest growth rate since 2011, according to the General Statistics Office.

Host Cambodia will go all out to welcome to sport delegates and athletes with the warmest hospitality for the 12th ASEAN Para Games.

Brazil-China trade switches to Yuan

Cooperation between central banks and participation of Brazilian bank in China’s payment system will facilitate transactions. Brazilian exporters will no longer need to use the US dollar for business transactions with China. The agreement was announced by the Ministry of Finance during a seminar in Beijing on Wednesday.

The event was being organised to mark the presence of President Luiz Inácio Lula da Silva in China, with the involvement of more than 240 businesspeople. However, due to pneumonia, Lula was forced to postpone the trip. Practically all the announcements that were to be made by the government were also postponed, including treaties on technology. However, during the opening of the meeting, the federal government explained that the new foreign exchange understanding aims to help reduce costs between the two countries.

"This is an effort to reduce transaction costs," said Tatiana Rosito, secretary of International Affairs at the Ministry of Finance.

This is not an obligation. For the exporter who wishes, trade may continue to be conducted in dollars. But for those who choose to make the sale between Brazilian real and Renminbi, a kind of "clearing house" will be established in Brazil to ensure conversion and liquidity between the two currencies. The "clearing house" should be established at a Chinese bank in Brazil, which has now been designated by the Beijing Central Bank. China has the same system in several countries around the world, including Chile and Argentina.

If the goal is to reduce transaction costs, Beijing sees such an initiative as an attempt to reduce its dependence and exposure in relation to the US currency, especially given the increasing tension between the US and China in the dispute for hegemony in several regions. According to the Finance Ministry, the initiative had already been agreed between the two central banks at the end of January. But it is only now being announced.

Another agreement will also allow Brazilian banks to participate in the payment system in the Chinese financial market. China is the biggest destination for Brazilian exports, with a decisive weight for Brazil's trade surplus.

Chinese credit

Another aspect of the rapprochement between Brazil and China could happen via the BNDES (National Bank for Economic and Social Development), which is sewing an agreement to access Asian credits and finance projects in Brazil, both in terms of infrastructure and energy transition.

The understanding is in its final phase and could have been signed during Lula's visit this week. In the president's entourage would also be the president of BNDES, Aloizio Mercadante. But the decision of the governments of Brazil and China was to suspend the announcements.

Natalia Dias, director of Capital Markets at the BNDES, said on Monday in Beijing that the current disbursement of the bank is R$100 billion. This represents 0.7% of the national GDP and well below the average of what was destined by the institution for the Brazilian economy. The goal is to reach 2% of GDP, which would mean exceeding the mark of US$200 billion. One of the ways, according to her, is to seek bilateral agreements or agreements with multilateral institutions.

Natália Dias also points out that there is, in negotiation process, a volume of US$5 billion in bilateral loans. Half of this amount would come from Asian banks. In the Chinese case, the idea is that the funding could also help leverage infrastructure projects that are being led by Beijing companies and that, today, Brazil still has no way to make feasible.

First Cross-Border Yuan Settlement of LNG Trade

China National Offshore Oil Corporation and France’s TotalEnergies have reportedly completed China’s first purchase of imported liquefied natural gas to be settled in Chinese yuan through the Shanghai Petroleum and Natural Gas Exchange. The deal is reported to have an energy content of 3.2 billion to 3.4 billion British thermal units, and the LNG comes from the United Arab Emirates, Shanghai Securities News reported today. It did not mention the value of the deal.

The first international LNG transaction settled in yuan is an attempt to promote multi-currency pricing, settlement, and cross-border payment, SHPGX Chairman Guo Xu said. The exchange launched international LNG trading in August 2020 and it will continue to play a platform role and strengthen the financial infrastructure for the cross-border yuan settlement business, Guo said.

The SHPGX was established in 2015 and the volume of natural gas traded on the exchange reached 92.86 billion cubic meters last year. CNOOC, the largest offshore oil and gas field operator in China, is committed to innovating international resource pricing and settlement models, according to Deputy General Manager Yu Jin. The promotion of international resource procurement based on yuan settlement can promote the globalization of energy trading and build a more diversified ecology, he noted.

At present, China’s yuan is the fifth most-used payment currency in the world, and its use in foreign exchange trading has increased to a global market share of 7 percent, the fastest growth among currencies in the past three years.

The scale of China’s oil and gas imports is also growing. In 2022, China imported more than 500 million tons of crude oil and more than 100 million tons of natural gas, including 63.44 million tons of LNG, and the sources are increasingly diversified.

Read more here.

Saudi’s join Shanghai Cooperation Organisation

Saudi cabinet approves decision at a meeting chaired by King Salman in a move that could grant Riyadh dialogue partner status in the bloc. Saudi Arabia has agreed to join the Shanghai Cooperation Organization (SCO) as a “dialogue partner”, state media reported on Wednesday, the latest indication of closer political ties with China.

The Shanghai Cooperation Organization was established in 2001 as a political, economic and security organisation to first accelerate Central Asian, and later, Eurasian integration.

Besides China, its eight members include India, Pakistan and Russia, as well as four central Asian countries – Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan. Iran joined SCO as a permanent member last year.

The cabinet approved the decision at a meeting on Tuesday chaired by King Salman, the official Saudi Press Agency (SPA) reported. The move would grant Riyadh “the status of a dialogue partner in the Shanghai Cooperation Organization”, it said.

Joining the SCO was discussed during a visit by Chinese President Xi Jinping to Saudi Arabia last December, sources said. Other countries with either observer or dialogue partner status include Egypt, Iran and Qatar.

The decision followed an announcement by Saudi Aramco, which raised its multibillion-dollar investment in China on Tuesday, by finalising a planned joint venture in northeast China and acquiring a stake in a privately controlled petrochemical group.

Riyadh’s move to partner with the bloc also came less than three weeks after the unveiling of a landmark China-brokered reconciliation deal with Iran to restore full diplomatic relations that were severed seven years ago.

Long bitter rivals, Shia-majority Iran and mainly Sunni Saudi Arabia have engaged in a series of proxy conflicts in the region, such as the conflict in Yemen. Tehran has denied backing the Houthis rebels, who took control of vast swathes of the impoverished country in late 2014 pushing out the internationally recognised government of President Abd-Rabbu Mansour Hadi.

Read more here.

Taiwan Diplomacy Falters

Taiwan’s leader Tsai Ing-wen is headed to New York, Central America and Los Angeles (LA). While in LA where she will most probably meet with Republican House Speaker, and Trump loyalist, Kevin McCarthy. From New York she will head to Guatemala, the only remaining state that recognises Taiwan in Central America and Belize in the Caribbean. Eight of Taiwan’s 13 diplomatic allies are in the Western hemisphere including Guatemala and Belize. Haiti, St. Vincent and the Grenadines, St. Kitts and Nevis, and Saint Lucia in the Caribbean Community (CARICOM) and Paraguay in South America make up the six others.

Paraguay is rumoured to be considering the switch to the PRC, but representatives of all Taiwan’s partners are almost certainly going to be present at the Guatemala and Belize meetings. While Tsai is in NY or LA there will almost certainly be secret phone discussions with President Biden and his security, defense, trade and technology advisors.

Taiwan’s 13 diplomatic allies are almost all micro-states with very small populations and markets. In the past this has worked in Taiwan’s benefit. However, a closer look reveals that these micro-states are amongst the world's poorest states and are almost entirely reliant on exports and or aid. Guatemala is among the world’s most violent states. There are of course similarities to the Pacific Island States. Not least the historic role of the US as security guarantor, trade export market and aid provider.

However, in the Western Hemisphere Lat-Am states are almost all left-leaning and look to China as a development model and, in comparison to the US, see China as both economically stable and a large and growing market for their exports.

Republican McCarthy is currently facing debt ceiling negotiations with Democrat President Biden in the shadow of the ongoing Ukraine conflict, bank collapses, high inflation and declining living standards. Janet Yellen has recently said that US Aid programs are very important for US influence, which indicates that budget cuts may have revolved around US overseas Aid programs.

The Editor

Philippines Ratifies RCEP Agreement

The RCEP is the world’s largest free trade agreement, comprising of members Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The agreement also covers one-third of the world’s population, and its members contribute to 30 percent of global GDP.

The RCEP offers opportunities in trade and investment for the Philippines, especially in deepening economic integration among RCEP member states and bringing healthy competition to industries in the country. A study by the Philippine Institute for Development Studies estimated that the Philippines GDP would increase by two percent through the country’s participation in the RCEP.

Further, according to the Asian Development Bank (ADB), the RCEP could increase the Philippines’ export by 3.7 percent by 2030, an addition of US$7 billion. Also, a study conducted by the International Trade Center based in Geneva highlighted that the country has an estimated US$27.8 billion of unrealised export potential to RCEP countries over the next five years.

Read full report here.

Charlie Munger says BYD is so far ahead of Tesla in China ‘it’s almost ridiculous’

Charlie Munger said Wednesday that Tesla pales in comparison to BYD in China, calling the Chinese electric vehicle maker his favorite stock ever. “I have never helped do anything at Berkshire [Hathaway] that was as good as BYD and I only did it once,” the 99-year-old investor said at the Daily Journal’s virtual annual meeting Wednesday. Berkshire initial investment is now “worth about $8 billion or maybe [$9 billion]. That’s a pretty good rate of return,” said Munger, Warren Buffett’s longtime investment partner.

BYD has been a lucrative bet for Berkshire, which first bought about 220 million shares in September 2008. The stock has jumped more than 600% in the past 10 years amid the massive growth in electric vehicles. Berkshire has actually been trimming its BYD stake in the past year as the stock has become increasingly pricey.

“At the current price of BYD stock, little BYD is worth more than the entire Mercedes corporation. It’s not a cheap stock, but on the other hand, it’s a very remarkable company,” Munger said.

Read more here.

Vietnam’s GDP growth in Q1 lower than expected

Vietnam’s gross domestic product (GDP) in the first quarter of 2023 has grown by 3.32% year-on-year, the second lowest growth rate since 2011, according to the General Statistics Office.This GDP growth rate fell short of the Government’s expectations of 5.6%. It is slightly higher than in the first quarter of 2020 when Covid-19 hit the country.

The services sector has expanded by 6.79% year-on-year thanks to the recovery of domestic consumption, contributing 95.91% to the overall growth rate.

The agro-forestry-fishery sector has increased by 2.52% over the first quarter of 2022, while industry and construction have edged down by 0.4% compared to the same period last year.

The decline in manufacturing and construction is induced by rising material costs and a drop in orders from abroad.

Between January and March, the service sector accounted for 43.65% of the national economic structure, followed by industry and construction with 35.47% and agro-forestry-fishery with 11.66%. The balance came from product tax minus product subsidies.

Fifty-eight out of the nation’s 63 provinces and cities have seen their regional gross domestic product growing.

Read more here.

South East Asian Games in Cambodia

Host Cambodia will go all out to welcome to sport delegates and athletes with the warmest hospitality for the 12th ASEAN Para Games. The nation wants to keep all the participants happy. Warm hospitality is key to a successful tournament and attracting tourists to the country, a senior official said. Yi Veasna, Secretary-General of the National Paralympic Committee of Cambodia and Deputy Secretary-General of the National Organising Committee of the 12th ASEAN Para Games 2023 (CAMAPGOC) made the remarks on Tuesday at a meeting of the Coordination Committee of the ASEAN Sports Federation and CAMAPGOC in Phnom Penh.

Veasna said that Cambodia will welcome all ASEAN sports delegates, international guests with jovial and energetic smiles to show the culture and civilisation of the Cambodian people.

“So there is nothing better than giving a warm greeting to our international guests. We all understand that after returning to their countries the ASEAN delegations of both the SEA Games and the ASEAN Para Games and international officials will be sure to promote Cambodia at home,” he said.

“Cambodia expects an increasing number of tourists to visit after these two historic sporting events,” he added.

“Thus, the participation of all countries, including the organisation by the host country, Cambodia, and under the support of Prime Minister Hun Sen, will promote Cambodia to succeed in hosting both the SEA Games and the ASEAN Para Games,” he said.

The APSF and CAMAPGOC meeting is being held from Tuesday to today to work out the detailed plan for ASEAN Para Games.

The Para Games feature 14 sports, including a demonstration sport. More than 500 para athletes have registered to date, with this number expected to rise.

Read more here.

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