Saudi Arabia Turns Toward China

[HaMoTZeMaS]

The last time it was Pak who mediated the turning of the USA toward China to check the USSR, and the rest is history…..

i dont understand your point

Please explain, maybe i dnt know the history

 

[Shotgunner51]

We're also planning to transfer our reserves from MAS to GIC

That's the way to go, see UAE and Norway, they practically bet all monies on SWF and don't keep any forex reserves at all!

Moreover you guys have an army of international bankers to do the job, we don't, at least not yet. Apparently Beijing is not so pleased with our SWF's combat results, well it takes time to build an experienced army like yours.

allowed to spend up to half of real returns

Wow that's a very tight fiscal discipline! We don't have that yet.

 

[Mista]

That's the way to go, see UAE and Norway, they practically bet all monies on SWF and don't keep any forex reserves at all!

Well, unlike the UAE and Norway which sells oil, we're an international financial center and very dependent on external trade. It's still important for us to maintain large forex reserves to deploy anytime when the contingency arises.

The episode involving hedge fund manager George Soros taking on the Bank of England in 1992, by betting against the sterling pound and "dramatically" destroying the United Kingdom's monetary system, is a stark example, he said.

"To put it simply, foreign exchange speculations have been and continue to be a threat to economies, especially small, open ones like ours," added Mr Heng.

Singapore, being a financial hub, had portfolio and banking-related flows that amounted to $294 billion last year, amid volatility in the global financial markets sparked by the pandemic, he noted.

This represented 63 per cent of gross domestic product.

"MAS kept the Singapore dollar nominal exchange rate stable during this period, backed by the full power of our reserves, giving banks and businesses certainty to make decisions under very trying circumstances," he said.

DPM Heng's experience during Asian, global financial crises
Mr Heng then related his personal experience during the Asian financial crisis in the late 1990s, when he was serving as principal private secretary to founding Prime Minister Lee Kuan Yew.

Mr Lee had been invited by several countries in the region to share his views, as the Singapore dollar, backed by the reserves, was relatively unscathed by currency devaluation crisis.

"It was very painful to see how speculation and the currency volatilities that those countries faced were destroying businesses, big and small, and the lives of the men and women in these places," said Mr Heng.

He noted that the Singapore dollar is one of the most actively traded currencies in the world relative to the country's GDP. The currency's daily turnover is estimated at US$37 billion (S$49 billion) globally, or annual turnover of US$9.5 trillion, far exceeding Singapore's nominal GDP of US$350 billion.

Compared with other countries, the exchange rate is far more important for Singapore, which is unique in its operation of an exchange-rate-centred monetary policy, noted Mr Heng.

Budget debate: Singapore must protect reserves, not in national interest to reveal its size, says DPM Heng

Any decision on the use of reserves is not taken lightly, he said. Read more at straitstimes.com.

www.straitstimes.com

 

[Shotgunner51]

Well, unlike the UAE and Norway which sells oil, we're an international financial center and very dependent on external trade. It's still important for us to maintain large forex reserves to deploy anytime when the contingency arises.

True. The best comparison with Singapore is perhaps another international financial center - Hong Kong. As of 2021Q1 their Forex Reserves stand at HK$ 3.82 trillion (roughly US$ 490 billion) while their SWF is estimated at only US$ 540 billion (very small compared to their humongous financial clout), obviously they are employing an even more conservative monetary/investment policy. Anyway both have among world's highest net financial assets, and both are well geared to mitigate any external shocks.

Hong Kong's Balance of Payments and International Investment Position statistics for first quarter of 2021

The Census and Statistics Department (C&SD) released today (June 22) the preliminary Balance of Payments (BoP) and International Investment Position (IIP) statistics of Hong Kong...

www.info.gov.hk

 

[Mista]

True. The best comparison with Singapore is perhaps another international financial center - Hong Kong. As of 2021Q1 their Forex Reserves stand at HK$ 3.82 trillion (roughly US$ 490 billion) while their SWF is estimated at only US$ 540 billion (very small compared to their humongous financial clout), obviously they are employing an even more conservative monetary/investment policy. Anyway both have among world's highest net financial assets, and both are well geared to mitigate any external shocks.

View attachment 793466

Hong Kong's Balance of Payments and International Investment Position statistics for first quarter of 2021

The Census and Statistics Department (C&SD) released today (June 22) the preliminary Balance of Payments (BoP) and International Investment Position (IIP) statistics of Hong Kong...

www.info.gov.hk

HK has big bro China to depend on while SG is on its own. We also have to spend tens of billions annually on military (highest in SEA). That's $100bil+ in a decade.

 

[vi-va]

HK has big bro China to depend on while SG is on its own. We also have to spend tens of billions annually on military (highest in SEA). That's $100bil+ in a decade.

I noticed that years ago that, Singapore military budget per capita is very close to Israel.

I applaud LKY and his successors' courage, strong political will and determination for independence.
I also pay my highest respect to Singapore people that they sacrifice their welfare for security.

Compare to what Israel got from US, hostile environment and what Singapore got and relatively more peaceful environment, Singapore government definitely get yourself prepared for the worst situation.
凡事预则立不预则废
故国虽大，好战必亡；天下虽安，忘战必危。
天行健 君子自强而不息
Singapore people made one of the greatest achievement among Chinese diaspora.

 

[vi-va]

Yes, a long term goal.

I would say a midterm goal. Things change fast.

1. The KSA-US relationship is being sour. US is not buying KSA oil/gas, while China do.
2. The day US made concession to Iran, the day KSA get pissed off.
3. US is not committed to KSA security, then KSA has no obligation to trade oil by USD.
4. US interfered KSA internal affairs, while China never did that, and has no interest to do that in the future.

The only concern KSA has is US sanction and bomb, but US dare not to do that.

 

[Shotgunner51]

HK has big bro China to depend on while SG is on its own

Ain't that true!

We also have to spend tens of billions annually on military (highest in SEA). That's $100bil+ in a decade.

$10 billion a year of course is not a small amount, no doubt. But look this way, Singapore SWF alone is roughly $1 trillion, which means a return of 1% can fully cover that without even touching domestic tax revenue. How much is the actual return? I guess 7% right? Current level of defence spend is affordable if not even comfortable for you guys, no worry!

 

[vi-va]

Ain't that true!

$10 billion a year of course is not a small amount, no doubt. But look this way, Singapore SWF alone is roughly $1 trillion, which means a return of 1% can fully cover that without even touching domestic tax revenue. How much is the actual return? I guess 7% right? Current level of defence spend is affordable if not even comfortable for Singapore.

For the year ended 31 March 2017, its annualised 20-year real rate of return was 3.7%. In USD nominal terms, GIC achieved an annualised return of 5.1%, 4.3% and 5.7% for the 5-year, 10-year and 20-year time periods respectively.[20]

GIC (sovereign wealth fund) - Wikipedia

en.wikipedia.org

AUM(Assets under management) is US$744 billion.

AUM is not the money Singapore has, it's the foreign exchange asset under GIC (Singaporean sovereign wealth fund) management.

Take Black Stone for example, AUM US$649 billion (Q1 2021), total assets US$26.269 billion (Q4 2020).
But Revenue US$6.102 billion (Q4 2020), Net income US$2.262 billion (Q4 2020)

Blackstone Inc. - Wikipedia

en.wikipedia.org

The revenue and net income is relatively very small. Because it's not Black Stone money at all. They are an asset management company.

Only part of foreign exchange reserve is Singapore money. NIIP is more meaningful.

Net international investment position - Wikipedia

en.wikipedia.org

 

[Shotgunner51]

The only concern KSA has is US sanction and bomb, but US dare not to do that.

There are 4 groups of creditors that have strong influence in the global financial landscape: China (including HK), KSA/GCC, Japan, Germany/Netherlands/Norway. While Germany being "Boss of Europe" is vested on dictating debts within Euro zone, it's left to the other three to support the current Dollar regime.

Yes, KSA is one pillar of petrodollar scheme, but it's hard to imagine KSA-US relationship turning sour in near-term in favor of China, you know the House of Saud is still under CIA "protection", US troops are also stationed there. I wish RMB can become a settlement currency in the "mid-term", but there are still tough challenges to overcome.

 

[OIO]

HK has big bro China to depend on while SG is on its own. We also have to spend tens of billions annually on military (highest in SEA). That's $100bil+ in a decade.

Hong Kong people call the central government Grandpa（阿爷）.

 

[Shotgunner51]

NIIP is more meaningful.

Yes, a measure of your NET assets, how rich you are. That's why I also mentioned HKSAR has the highest net external assets (aka NIIP) to GDP ratio in post #19, a whooping 586%! Is crazy! No wonder HKSAR dominates 60% of China Mainland's inbound FDI.

In absolute size of course Japan & Germany are the top financial powerhouses, well I think China may likely overtake them in a few years. But taking tiny population size into account, the "wealthy" powerhouses are HKSAR, Singapore, Taiwan, Norway, Switzerland, Netherlands.

 

[TigerOfMysore]

I would say a midterm goal. Things change fast.

1. The KSA-US relationship is being sour. US is not buying KSA oil/gas, while China do.
2. The day US made concession to Iran, the day KSA get pissed off.
3. US is not committed to KSA security, then KSA has no obligation to trade oil by USD.
4. US interfered KSA internal affairs, while China never did that, and has no interest to do that in the future.

The only concern KSA has is US sanction and bomb, but US dare not to do that.

The US considers the House of Saud as some glorified Chowkidars of the Arabian peninsula. The day the Saudis start showing their teeth or develop an objective independent policy their days will countdown. The biggest threat to the Saudis is the weakness of their governance structure and location of personal wealth of the power brokers. The US' favorite will quickly find themselves at the top and rest pushed aside. The US does that through a solid intel network within SA and all around it in Kuwait, Bahrain, Qatar, UAE and even Oman.

SA is firmly in the US camp and is going nowhere. If the US takes a hard line against the Saudis it will be primarily to replace him (MBS) with someone else. Infact I'll argue that is likely where we are to see the clash. The US rather have someone else at the top, MBS for them is too unpredictable. And with the blood of Jamal Kashoggi on his hands MBS is sort of radio-active.

Situation is in flux in SA and will remain like that. Does not mean US is willing or likely loosing control and influence over SA. SA is a prison in all the sense of the imagination. The ultimate prison guards being the US.

To your points above:
Point 1. - US does not buy Saudi Oil because US itself is no a Net exporter of energy due to its efforts around Shale and Fracking. Also US has always been and for years now a very small importer of ME oil.
Point 2. - US, Iran policy if anything is a lever for the US not SA. SA is the tail of the dog, and it is not the tail here wagging the dog. SA has no option but to follow US policy. It can groan and moan but does not have an oversized influence. Even Israelis sometimes find themselves thinking they have an oversized influence. US will carefully calibrate its Iran policy so as not to upend stability, but it will at the end of the day do what it wants, and SA might get pissed off but getting pissed off means nothing for a nation with little to no leverage.
Point 3. - US is committed to SA security. It is not committed to SA rulers agenda. US clearly sees the difference. For the US a ruler is a temporary man incharge. The nation is a permanent fixture. US has a massive security infrastructure in SA and it remains unmoved or challenged.
Point 4. - SA is a defacto colony of the US. So not sure what interferring with SA internal affairs means.

 

[Shotgunner51]

Does not mean US is willing or likely loosing control and influence over SA

US economy and power hangs on the Dollar regime and KSA is a pillar to it, so US won't willing loose control over the House of Saud. That's why when this news came out many including myself was a bit surprised, why MBS is shifting monies from US/Europe to China? It can't be just business decision, cos it has never been about the business.

 

[Song Hong]

The oil sheikhs have good relationship with China when US permits. During the start of Deng reform when China desperately need FX to modernized, the Kuwati banks bank in a large number of USD into China banks, essentially providing a loan to the Chinese.

That was when US was in honeymoon with China, China relationship with the Gulf Sheikhs have always been cordial.

US economy and power hangs on the Dollar regime and KSA is a pillar to it, so US won't willing loose control over the House of Saud. That's why when this news came out many including myself was a bit surprised, why MBS is shifting monies from US/Europe to China? It can't be just business decision, cos it has never been about the business.

I would say LKY and subsequent PAP leadership a stroke of luck and genius. Lots FX does not belongs to the government but rather, hot or semi hot monies as a result of Singapore being the financial center.

Sitting on a pile of FX, GoS bought lots of treasury, earning quite a big profit on other people's monies. Upon good opportunities, these FX are used to finance GIC -- I would say conservatively and prudently （I may change my mind upon more GIC disclosure） earning a decent amount of profit.

The reason HKMA being more conservative is a result of HK being a currency board, aka a full reserve banking institution.