China is scrambling to find ways to protect its trillions of dollars in foreign assets from US sanctions similar to those imposed on Russia.
Chinese regulators held an emergency meeting with domestic and foreign banks last month to discuss protecting billions of dollars in overseas assets from US sanctions similar to those imposed on Russia, report says .
the FinancialTimes reports that the April 22 meeting between representatives of China’s central bank and finance ministry and leaders of all major banks operating in China was called because Chinese officials fear similar action could be taken against Beijing in case of regional military conflict.
Although officials and participants did not mention specific scenarios, according to the report, the most likely trigger for international sanctions would be a Chinese invasion of Taiwan.
The Chinese Communist Party considers the democratic island nation of 24 million to be part of China, and President Xi Jinping has staked his legacy on the “reunification” of the last surviving stronghold of the 1949 civil war.
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“If China attacks Taiwan, the decoupling of the Chinese and Western economies will be much more severe than [decoupling with] Russia because China’s economic footprint touches every region of the world,” said one of the people briefed at the meeting. FinancialTimes.
After Vladimir Putin invaded Ukraine on February 24, Western countries led by the United States imposed sweeping financial sanctions on Moscow, including cutting it off from the Swift interbank courier network and seizing $300 billion foreign currency reserves of Russia.
According to FinancialTimes According to the report, China’s top regulators asked bankers at the meeting what could be done to protect China’s overseas assets, especially its $3.2 trillion in foreign exchange reserves.
China holds over US$1 trillion in US Treasuries and owns huge amounts of real estate, including large office buildings and hotels in New York.
“No one there could think of a good solution to the problem,” another person briefed on the meeting told the newspaper. “The Chinese banking system is not prepared for a freeze on its dollar holdings or a ban from the Swift messaging system like the United States did for Russia.”
Others at the meeting reportedly wondered whether the United States could afford to sever economic ties with China, given its vast dollar-denominated assets and the close trade relationship between the two countries.
Peking University finance professor Michael Pettis said the fact that participants were unable to come up with a solution “shows how locked China is in a structural problem”.
“As long as China runs large trade surpluses, it has no choice but to acquire foreign assets in exchange for the surpluses, and as long as it is unable to rebalance domestic demand, it has no choice but to acquire foreign assets in exchange for the surpluses. ‘no choice but to run large trade surpluses,’ he said. wrote on Twitter.
Professor Pettis noted that it was interesting that, according to the report, when Chinese officials present at the meeting were asked if they could diversify into more yen- or euro-backed assets, they replied that the idea was impractical.
“They’re right. It’s impractical because if China stops acquiring US assets and instead acquires Japanese or European assets, the resulting capital inflows into those countries would displace the huge US trade deficit to these countries,” he said.
“Unlike the United States, Japan and Europe cannot and will not manage the huge deficits that correspond to China’s surpluses. It is mainly the United States (and the English-speaking economies) that are ready to run the huge deficits that allow other rich and/or commodity-exporting countries to run surpluses. This means that the United States provides the mechanism that allows other countries to suppress domestic demand.
In order to maintain this situation, “the United States must run permanent trade deficits and accept unemployment or (more likely) skyrocketing debt and asset bubbles that balance those deficits.”
“Europe and Japan rightly refuse to play this role. The United States, oddly, is embracing it,” he said.
“In other words, if the United States prevents countries like China, Germany and Russia from recycling their export surpluses by acquiring American assets, these countries would have to choose between exporting less or importing more products. Americans.”
Mike Shedlock of SitkaPacific Capital Management said US President Joe Biden had sent an “unequivocal message to China, to Saudi Arabia, to Russia, finally to everyone” that “we can return your fiduciary reserves without overnight value”, to buy gold, base metals and “hoard”. things that everyone needs”.
“But guess what happens if everyone starts hoarding stuff that everyone else needs?” he wrote.
“There’s no practical action China can take, but it can crumble around the edges. It’s a complicated mess on a global scale, for literally the whole world. I don’t know when it will explode into a major currency crisis, but it will be.”