Concerns Over Secondary Sanctions by China... Discussions on Overseas Asset Protection Measures

Ideas such as exchanging dollar export proceeds into yuan and reducing overseas purchase limits
No clear solution found in the end
Some opinions say it is difficult for the US to sanction China

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyun-jung] The UK Financial Times (FT) reported on the 1st (local time) that China has begun discussions on measures to protect overseas assets amid concerns over secondary sanctions (third-party sanctions) related to its pro-Russian stance.

According to the report, on the 22nd of last month, China’s Ministry of Finance and the People’s Bank of China held an emergency meeting with domestic and foreign banks to discuss ways to protect China’s overseas assets from sanctions similar to Western sanctions on Russia. Officials are reportedly concerned that similar measures could be taken against China in the event of regional military conflicts or other crises. Sources said that dozens of executives from the Chinese Ministry of Finance, local banks, and foreign banks such as HSBC attended the meeting.

Some officials and attendees did not mention specific anticipated scenarios, but it was reported that there were remarks suggesting the possibility of US-led sanctions triggered by China attacking Taiwan. At the meeting, one official said, "If China attacks Taiwan, the decoupling of the Chinese and Western economies will result in more severe consequences than the decoupling between Russia and the West."

Regarding this, Andrew Collier, Managing Director of Orient Capital Research in Hong Kong, explained, "The Chinese government has almost no alternatives to US financial sanctions, and the outcome would be very bad, so it should be a cause for concern."

Later, regulatory officials including Liu Yiman, Chairman of the China Securities Regulatory Commission, and Xiao Gang, former Chairman of the CSRC, asked financial sector participants what responses could be taken to protect China’s overseas assets, especially the $3.2 trillion foreign exchange reserves.

At this meeting, some proposed measures such as exchanging all dollar export proceeds into yuan to expand dollar holdings, or drastically reducing the current $50,000 overseas travel consumption and direct purchase limits for Chinese citizens. There were also suggestions to diversify into collateral assets denominated in yen or euros, but these were criticized for lacking practicality. Another source said that ultimately no solution was found through the discussion that day. It was also assessed that the Chinese banking system is not prepared for the possibility of dollar asset freezes or being expelled from the global banking financial communication network (SWIFT).

Some opinions suggested that considering China is the world’s second-largest economy, holds massive dollar assets, and has close trade relations with the US, there is little room to sever ties with China through sanctions. Managing Director Collier diagnosed, "It is difficult for the US to impose large-scale sanctions on China," comparing it to "mutual assured destruction in nuclear war."

This content was produced with the assistance of AI translation services.