[ad_1]
Photographer: Paul Yeung / Bloomberg
Photographer: Paul Yeung / Bloomberg
China’s latest threat to ban companies with ties to US officials visiting Taiwan points to a weakness in Beijing in its sanctions battle with Washington: It can control its own borders, but the dollar rules the world.
In recent months, the Trump administration has imposed sanctions against more than a dozen Chinese officials and restricted access to dozens of Chinese companies. The miseries have caused credit card headaches for Hong Kong CEO Carrie Lam and According to the South China Morning Post, it forced the former British colony’s police credit union to transfer some $ 1.4 billion in assets to Chinese banks.
Meanwhile, the “strong countermeasures” that Beijing has threatened against US officials, including Senators Marco Rubio of Florida and Ted Cruz of Texas, have yet to be felt in the Pacific. None of the dozen Americans sanctioned since July have received notification of what the sanctions would entail, save for the assumption that they would not be welcome in China.
Photographer: Al Drago / Bloomberg
“I wear it as a badge of honor, but Beijing’s actions have no impact on me,” said Rubio, a frequent critic of China who has been named in Sanctions announcements twice this summer.
While China has calibrated its response to minimize the risk of further escalation by President Donald Trump, it is also constrained by the dominance of the US dollar in international finance. The dollar It accounted for nearly 40% of all SWIFT transactions in July, compared with less than 2% for the renminbi, as the Communist Party resists calls to ease currency controls. That makes it more difficult for multinational banks: including China’s state lenders, to avoid compliance with US sanctions.
The U.S. dollar advantage could become even more important if the Trump administration sanctions financial institutions in Hong Kong as authorized by congressional legislation in July, or if it takes direct action against Chinese banks. Beijing’s most powerful weapon continues to block access to its vast market: Hu Xijin, editor-in-chief of the party’s Global Times newspaper, said on Wednesday that such a move was being considered for companies linked to US officials visiting Taiwan. .
“China does not have many tools to implement sanctions because the US payment system is so prolific and ubiquitous,” he said. Edwin Lai, an economics professor at the Hong Kong University of Science and Technology who specializes in renminbi internationalization. “China is at a disadvantage in the sanctions game because its payment system is underdeveloped and the internationalization of the yuan is decades away.”
The US financial sanctions also carry less risk of backfire than China’s usual tactic of cutting off market access. The Chinese economy is still dependent on foreign investment and Beijing is wary of measures that could scare off multinationals and thwart its phase one trade deal with Trump. Chinese diplomats have in recent weeks expressed their desire to reduce tensions ahead of the US presidential election on November 3.
So far, both sides have stayed away from sanctioning top officials, with Trump ruling out measures against potential targets, including Deputy Prime Minister Han Zheng, people familiar with the matter said in July. While the United States has penalized Lam and Politburo member Chen Quanguo for alleged human rights violations, China has targeted lower-level officials such as Ambassador-General for International Religious Freedom Sam Brownback and six members of Congress.
Cruz spokeswoman Maria Jeffrey said the exchange showed that the United States has a much stronger sanctions framework, including a procedure for notifying people who have been attacked. “I guess he can’t go there anymore,” Jeffrey said. “When we ban someone’s visa, there is a human whose job it is to send him a letter saying, ‘Don’t bother coming.’
The last American decision of Sanctioning 24 Chinese companies for their alleged roles in building military facilities in the disputed South China Sea indicates further expansion of the strategy. Major lenders with operations in the US, including Bank of China Ltd., China Construction Bank Corp., and China Merchants Bank Co., has taken tentative steps to comply with US sanctions.
Yuan Review
Further escalation could involve US-based asset seizures, Yu Yongding, senior researcher at the Chinese Academy of Social Sciences, he said at a forum organized by the Beijing News newspaper on August 12. “This possibility cannot be ruled out,” Yu said, citing sanctions imposed on Bank of Kunlun in 2012 for ties with Iran.
The United States also has the nuclear option to isolate China from the US dollar system, said Ding Shuang, chief economist for China and North Asia at Standard Chartered Plc, leaving China unable to transact in dollars. This option is unlikely to materialize given the financial damage it would inflict on US companies based in China and Hong Kong, Shuang said.
“The danger of this happening is one of the key reasons why China can accelerate the internationalization of the renminbi,” Shuang said. “The tensions between the United States and China directed at the financial industry have been the catalyst to re-accelerate the momentum of internalizing the renminbi.”
China has other tools to implement, if ties deteriorate enough to justify broader economic damage, including unloading Treasuries or blocking exports of rare earths and other key manufacturing components. Beijing could also reverse cooperation on sanctions against North Korea and Iran.
For China to gain global financial leverage, it needs to open its capital account to encourage greater use of the yuan, said Scott Kennedy, senior adviser and trustee of Chinese business and economics at the Center for Strategic and International Studies. The cost would give investors some ability to influence China’s exchange rates.
“Until Beijing changes the underlying calculus, China will not be able to incorporate financial constraints into its coercive diplomacy toolkit,” Kennedy said.
[ad_2]
