Chinese regulators have held an urgent meeting with domestic and foreign banks to discuss how they can protect the country’s foreign assets from US-led sanctions similar to those imposed on Russia for the invasion of Ukraine, according to people familiar with the discussion.
Officials are concerned 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 has maintained solid support for Vladimir Putin throughout the crisis, but Chinese banks and corporations remain wary of dealing with Russian entities that could trigger US sanctions.
The internal conference, held on April 22, included officials from China̵[ads1]7;s central bank and finance ministry, as well as executives from dozens of local and international lenders such as HSBC, the people said. The Ministry of Finance said at the meeting that all major foreign and domestic banks operating in China were represented.
They added that the meeting began with comments from a senior official in the Ministry of Finance who said that Xi’s administration was on standby due to the possibility of the United States and its allies freezing the Russian central bank’s dollar assets.
Officials and participants did not mention specific scenarios, but a possible trigger for such sanctions is believed to be a Chinese invasion of Taiwan, which China claims as its territory and has threatened to invade it if Taipei refuses to submit to its control indefinitely.
“If China attacks Taiwan, the decoupling of the Chinese and Western economies will be far more serious than that [decoupling with] Russia because China’s economic footprint is affecting all parts of the world, said one of the people briefed on the meeting.
Andrew Collier, CEO of Orient Capital Research in Hong Kong, said the Chinese government was right to be concerned “because it has very few options and consequences. [of US financial sanctions] are catastrophic ».
Senior regulators including Yi Huiman, president of the China 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 foreign assets, especially its $ 3.2 billion in foreign exchange reserves.
China’s huge holdings in dollars range from more than 1 tonne of US government bonds to office buildings in New York. State-owned Dajia Insurance Group, for example, owns Waldorf Astoria New York.
“No one on the ground could think of a good solution to the problem,” said another person who was briefed on the meeting. “
HSBC did not respond to a request for comment.
Some bankers suggested that the central bank could require exporters to exchange all their foreign exchange earnings for renminbi in order to increase their holdings of dollars on land. Exporters are currently allowed to keep part of their foreign exchange earnings for future use.
Others suggested a “significant” $ 50,000 quota cut that Chinese nationals are allowed to buy each year for overseas travel, education and other offshore purchases.
When an official asked Chinese bankers if they could diversify into more yen or euro-backed assets, they replied that the idea was not practical.
However, some bankers present doubted whether Washington could ever afford to cut economic ties with China, given its status as the world’s second largest economy, huge holdings of dollar assets and close trade ties with the United States.
“It is difficult for the United States to impose massive sanctions on China,” Collier said. “It’s like mutual destruction in a nuclear war.”
Additional reporting from Tabby Kinder in Hong Kong