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In thirty-four years of work, I ended up accepting a law of journalism that my ego had resisted for a long time: when I grasp a “new” idea, the smartest people in Europe have known it for a long time. I received confirmation of this last month when I received the same message about China from Jens Stoltenberg, the NATO secretary general, and from the Ukrainian top manager who ran Azovstal. Said in brutal terms: time to ask ourselves if we are not moving from dependence on Russia to a more subtle dependence on China.
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The new dependency: batteries, photovoltaics and turbines
The graph you see above, taken from the National Renewable Energy Laboratory website of the American administration, makes us understand that obviously there is a risk: the transition from fossil fuels to renewable ones on which Europe is betting its future – for indisputable reasons here explained by Sara Gandolfi – makes us dependent on the country at the center of the process of extraction and processing of the raw materials necessary for the electric car batteries, photovoltaic panels or wind turbines (Federico Rampini talks about it for the “Corriere” who). The risk, however, is even greater than it appears because China often has a dominant position even when the provenance of a certain strategic material, in itself, would not make us think. the case for example of cobalt, a metal present for about 14 kilos in a typical battery of an electric car: 70% of the cobalt mined in the world comes from the Democratic Republic of Congo, explains the IMF; but you go to have a better look and you realize that there 15 of the 19 active mines are owned or otherwise controlled by Chinese entities. In short, China had understood everything before us: it had understood where we would go, while we were struggling in the financial crisis, in the disputes between Italy and Germany over the euro, between populists and globalists in all the main countries. disturbing to even say, but the Chinese leadership has strategically read our future before us and now it seems on the verge of becoming a next-generation energy superpower.
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Photovoltaics
The next graph contains a financial message that we have not yet fully assimilated: in the next two decades, to 2040, we will probably transfer sums exceeding 10 trillion to Beijing (and its vassals) dollars, similar to those paid in the last two decades by the West to Russia or the Gulf countries for gas and oil.
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This dominance also has information advantages for Beijing, because only those who produce photovoltaic panels know, for example, how much they really pollute in making and selling them around the world. That is, honestly, he has insider knowledge and can take us by the nose. I was very impressed by reading the results of a study by an independent analyst such as Enrico Mariutti: China dominates the photovoltaic industry (again, take a little look at the graph above), but the production and distribution process is so opaque that ultimately the electricity produced by those panels could have carbon intensity – that is, it could pollute – pretty much like a gas plant. Today only they, the Chinese, know it. But if confirmed, it would be the biggest scandal in the industry since the Dieselgate seven years ago. But the most problematic thing for me is that neither Nato’s Stoltenberg nor Yuriy Ryzhenkov, the CEO of Ukrainian Metinvest who owns the legal ownership of Azovstal, told me about this form of Europe’s dependence on China. But others.
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He 5g
Stoltenberg posed the problem of penetration of Chinese companies (Huawei and Zte above all) in NATO countries for 5G networks: a theme that we know very well in Italy too. But above all Ryzhenvov who electrocuted me at the end of an interview I had with him a few weeks ago. He explained that Azovstal was producing, as a side-by-side process of steelmaking, significant amounts of the neon gas needed by the global microchip supply chain. It supplied the giants of the sector, the Taiwanese TSMC and the American Intel. But, after a phase of adaptation, according to Ryzhenkov that place will be taken by the large Chinese steel mills. I translate in my own words: a side effect of the war in Ukraine will be the conquest of a key position by Beijing in an all-round strategic sector such as that of semiconductors. That is, the Chinese are already working to take Azovstal’s dominant position in this critical segment of semiconductor manufacturing that is in our cars, in our refrigerators, in the devices you are reading from. Is that what we want? Is there really nothing that we Europeans (and Italians, in Taranto) can do to produce in our steel mills some of the neon gas that will no longer arrive from Ukraine? Are we left with a modest dose of strategic thinking skills in the “free world” or have we also delocalized that to China? I had promised in this newsletter, not having ready answers, at least to ask some right questions and this is my sincere attempt to do so. Not without having also involved Christine Lagarde, the president of the European Central Bank, who disrupted last week, in the exercise.
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What you see above is my attempt, as usual raw and handcrafted, to show how the euro exchange rate started to depreciate with particular speed since last Thursday as Lagarde opened her mouth in her latest press conference. Indeed, the exchange rate had risen a bit when the ECB note came out announcing the rate hike in July, September and then thereafter. It is Lagarde’s own words that depressed the euro (on Friday it devalued on 25 of the 31 currencies in the European Central Bank’s reference basket). Why interesting? Because the announcement by Lagarde, which released volatility and caused the yields of sovereign bonds of half a dozen countries in the euro area to rise significantly, managed to produce the opposite of what was logical to expect: precisely the euro slipped to ingi, instead of appreciating oneself. The market evidently fears that the ECB will bring recession even where recession does not yet exist. Now, because Lagarde reacts not to excess domestic demand inflation, but above all to inflation imported from oil, gas and foodstuffs, cause a depreciation of the self-defeating exchange rate – a heterogenesis of ends – because it drives inflation even higher precisely by increasing the price in euros of imported goods. It seems to me the most indicative sign that the ECB flopped last Thursday: by depressing the euro, instead of fighting the high cost of living, it accentuates even more the Putin effect on prices that today fuels inflation. Or not?
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This article taken from Federico Fubini’s newsletter “Whatever it takes”, strong data, facts and opinions: the challenges of the week for the economy and markets in an unstable world.(Here the link for subscribing to the newsletters of the Corriere della Sera).
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