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BEIJING, Oct 20 (Reuters) – China is at war with the United States over Taiwan, allowing China to build a global network of companies under U.S. sanctions, freeze U.S. assets within its borders and issue gold-denominated bonds, according to the Chinese government. Will need to do. Allied researchers are studying the Western response to Russia’s invasion of Ukraine.
The sanctions against Moscow have prompted hundreds of Chinese economists, financiers and geopolitical analysts to examine what the consequences could be for China, including the loss of access to the U.S. dollar, according to a Reuters review of more than 200 Chinese-language policy papers and academic articles. How to mitigate extreme scenarios. Published from February 2022.
“In the context of intensified China-US strategic competition and the Taiwan Strait conflict, we should be cautious of the US adopting this financial sanctions model against China,” wrote Chen Hongxiang, a researcher at a branch of the People’s Bank of China (PBOC). ) in eastern Jiangsu province.
China must “prepare for a rainy day” to ensure its financial and economic stability, he said.
The specifics of the scenarios and possible counter-measures are being reported for the first time by Reuters.
Assessing Russia’s experience, many researchers have warned that China’s much larger economy and reliance on advanced foreign technology and commodity imports means a sanctions fight with the West could be far more destructive. Some believe that increasing interdependence may be a better approach than downing the shutters.
Chinese President Xi Jinping has ordered the People’s Liberation Army to be ready to invade Taiwan by 2027, senior US military officials have said. Beijing has not ruled out using force to capture the island, although it has never shared details about war preparations.
But discussions about US sanctions fell in the 12 months after the war in Ukraine began compared with the same period a year earlier, according to a review by the China National Knowledge Infrastructure, which also included researchers from China’s foreign and financial policy establishment. increased by 50%. , the country’s largest database of academic literature.
“Analyzing different possible scenarios and coming up with China’s prevention, response and countermeasures is undoubtedly a top priority for China’s policymakers,” Yu Yongding, an economist and former central bank adviser, wrote in a journal article in July 2022.
Reuters contacted all the researchers named in this story directly or through their institutions, but most declined to comment or did not respond. Yu cited an op-ed he wrote for Reuters on decoupling.
The PBOC said in a statement that research papers written by its staff represent their personal views. The central bank did not respond to questions about its sanctions plan.
China’s State Council Information Office did not respond to questions about Beijing’s contingency planning.
looking towards moscow
The Russian central bank’s freeze on more than $300 billion of foreign currency assets and the removal of Russian banks from the SWIFT interbank payment system last year are particularly worrying Chinese experts, as China’s foreign exchange reserves exceed $3 trillion and its The economy is dependent on exports. ,
“The risk of China’s foreign reserve assets being seized seems more imminent,” wrote Wang Yongli, general manager of China International Futures, one of the country’s largest commodity and financial futures brokerage businesses.
Wang and several PBOC researchers have written in articles suggesting that if the US imposed Russia-style sanctions on China, Beijing should freeze US investment and pension funds and seize the assets of US companies. The papers did not name individual companies as potential targets.
Researchers have also devised unconventional solutions to China’s dependence on the US dollar, partly inspired by Moscow’s policies.
The Beijing-based China Center for International Economic Exchange (CCIEE), which counts former commerce ministers among its leaders, has published several analyzes on what lessons China should learn from Russia.
Sun Xiaotao, a researcher at CCIEE, published an article in February arguing that China should push for more gold-denominated trade to prevent large fluctuations of the yuan – which has lost its gold since the Ukraine war. It echoed the Russian central bank’s decision to increase its reserves by one million ounces.
Reuters could not determine to what extent think tanks influence China’s decision-making, but they are known to write briefings and reports for key officials.
Some of China’s policies are in line with newspaper recommendations. Central bank data in early October showed the PBOC increased its official gold reserves for the 11th consecutive month.
energy and alliance
In addition to financial sanctions, Russia’s response to Western pressure on its oil, gas, metals and chips industry has given food for thought to Chinese researchers.
Mou Lingzhi, an academic at the Shanghai Academy of Social Sciences, wrote in January that Russia’s demand that its natural gas be paid for in rubles should prompt China to boost yuan pricing of commodities like lithium, Which is important for electric vehicles. Batteries.
Central bank researchers echoed this point, with Xia Fan, a man at the PBOC branch in the island province of Hainan, writing last November that China should use international energy settlement in the yuan to weaken the dollar’s dominance in the oil market. The process should be expedited”. ,
Researchers at China Minmetals Corporation, one of the country’s top miners, wrote in June that emergency plans were needed to guarantee supplies of iron, copper, nickel and other strategic metals, noting that Russian nickel products were shipped to London Metals. Was suspended from the exchange. Consequences of the war in Ukraine.
Other researchers called for a new economic bloc that could protect China under tit-for-tat sanctions.
Ye Yan, an economist at China National Oil and Gas Exploration and Development Co., wrote in January that the cheap Russian oil that China has gained as a result of Western sanctions has created a model for a future “anti-sanctions corporate network.” Which will allow. Member countries trade concessional goods.
Chinese researchers also suggested that Beijing exploit rifts within the EU and between the US and its allies. One foreign analyst said that there may be a lack of unity in the West.
Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said, “Achieving broad international consensus for a sanctions coalition on China will be much more difficult than on Russia, because of the much greater volume of investment there and the dependence on its market. ” In Washington.
looking for solutions
Some analysts have highlighted the limitations of yuan internationalization, arguing instead that China should ease sanctions by increasing its economic ties with the US and its allies.
Yu, a former PBOC adviser, wrote in his 2022 paper that it was unlikely the US would seize trillions of dollars or refuse to pay principal and interest on China’s Treasury bills.
Yu wrote, “Because of the close economic and financial ties between China and the United States, the United States will not do something like ‘kill a thousand of the enemy and wound eight hundred of its own.’”
China International Futures official Wang made a similar argument last year, saying gold is not a practical replacement for dollar reserves because of the costs and risks associated with transporting and storing large amounts of the metal.
In light of these issues, many researchers suggest that Beijing further open up domestic financial markets to align the interests of the US, its allies, as well as companies from these countries with those of China, which would increase the costs of sanctions.
Partly in response to this, the EU and the US have sought to derisk and diversify supply chains and on-shore production of chips. But it will take time for these policies to bear fruit, Chorzempa said.
“China’s more pronounced role in global value chains will give it more opportunities to avoid (sanctions), and its ability to substitute foreign technology for indigenous production is far stronger than Russia’s,” he said.
PBOC researcher Chen considered the “nuclear” option of isolating China from SWIFT and concluded that increased cooperation with the US was the best way to protect China.
“The mutual penetration of the Chinese and American economies will inevitably weaken the willingness to impose financial sanctions,” he wrote.
(Reporting by Eduardo Baptista; Editing by David Crawshaw)