Chinese regulators have held an emergency meeting with local and foreign banks to discuss how they could protect the country’s foreign assets from US-imposed sanctions similar to those imposed on Russia for its invasion of Ukraine, according to those familiar with the discussion.
Authorities are worried that the same measures could be taken against Beijing in the event of a regional military conflict or other crisis. President Xi Jinping’s administration maintained strong support for Vladimir Putin during the crisis, but Chinese banks and companies remain wary of deals with Russians that could provoke US sanctions.
The internal conference, held on April 22, was attended by officials from China’s central bank and finance ministry, as well as heads of dozens of local and international creditors such as HSBC, people said. The finance ministry said at the meeting that all major foreign and domestic banks operating in China were represented.
They added that the meeting began with remarks by a senior finance ministry official who said the Xi administration was alarmed by the ability of the United States and its allies to freeze the dollar assets of Russia’s central bank.
Officials and attendees did not mention specific scenarios, but it is believed that a possible trigger for such sanctions is a Chinese invasion of Taiwan, which China claims as its territory and threatens to invade if Taipei refuses to submit to its control indefinitely. time.
“If China attacks Taiwan, the separation of the Chinese and Western economies will be much more difficult than [decoupling with] Russia, because China’s economic footprint affects every part of the world, “said one of the people informed about the meeting.
Andrew Collier, managing director of Orient Capital Research in Hong Kong, said the Chinese government was right to be concerned, “because there are very few alternatives and the consequences [of US financial sanctions] are catastrophic. “
Senior regulators, including Yi Huiman, chairman of China’s Securities Regulatory Commission, and Xiao Gang, who chaired the CSRC from 2013 to 2016, asked bankers present what could be done to protect the nation’s overseas assets, especially its $ 3.2 trillion in foreign reserves.
Huge Chinese dollar-denominated holdings range from more than $ 1 trillion in US Treasury bonds to office buildings in New York City. The state-owned Dajia Insurance Group, for example, owns Waldorf Astoria New York.
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“No one on the ground could come up with a good solution to the problem,” said another person informed of the meeting. “China’s banking system is not prepared to freeze its dollar assets or disconnect from the Swift messaging system, as the United States did of Russia. “
HSBC did not respond to a request for comment.
Some bankers have suggested that the central bank may require exporters to exchange all of their foreign exchange earnings for the yuan to increase their dollar-denominated cash on shore. Exporters are currently entitled to retain part of their foreign exchange earnings for future use.
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Others have proposed a “significant” reduction in the $ 50,000 quota that Chinese citizens can buy each year for travel abroad, education and other offshore purchases.
When an employee asked Chinese bankers if they could diversify into more assets backed by yen or euros, they said the idea was not practical.
However, some bankers present questioned whether Washington could ever afford to sever economic ties with China, given its status as the world’s second-largest economy, huge dollar holdings and close trade with the United States.
“It is difficult for the United States to impose massive sanctions on China,” Collier agreed. “It’s like mutually guaranteed destruction in a nuclear war.
Additional reports by Tabi Kinder in Hong Kong
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