Amid escalating tensions with the United States over Taiwan, Chinese researchers affiliated with the government have been exploring a range of strategies to safeguard their nation’s financial and economic stability, according to a Reuters review of over 200 Chinese-language policy papers and academic articles published since February 2022. These experts have been analyzing the Western response to Russia following its invasion of Ukraine, looking for insights that might help China navigate potential extreme scenarios, including a loss of access to U.S. dollars and extensive sanctions.
“In the context of intensified Sino-U.S. strategic competition and the Taiwan Strait conflict, we should be wary of the U.S. replicating this financial sanction model against China,” warned Chen Hongxiang, a researcher at a branch of the People’s Bank of China (PBOC) in eastern Jiangsu province. He emphasized the need for China to “prepare for a rainy day” to ensure its financial and economic stability.
These revelations come as senior U.S. military officers have raised concerns about Chinese President Xi Jinping ordering the People’s Liberation Army to be prepared to invade Taiwan by 2027. While Beijing has not disclosed detailed war preparations, discussions about U.S. sanctions have surged within China’s foreign and financial policy establishment, increasing by 50% in the 12 months following the start of the Ukraine war.
Analysts have expressed concern that China’s much larger economy and its reliance on advanced foreign technology and commodity imports could make a sanctions fight with the West far more destructive. Despite the challenges, some experts have doubled down on the view that increasing interdependence could be a more effective approach than isolating the country.
The Chinese government has not officially responded to these reports, and most researchers named in the review declined to comment or did not respond to inquiries. However, the People’s Bank of China (PBOC) released a statement noting that the research papers authored by its employees reflect their personal views.
The freezing of over $300 billion in Russian central bank foreign currency assets and the removal of Russian banks from the SWIFT interbank payments system have particularly concerned Chinese experts, given China’s more than $3 trillion in foreign exchange reserves and its export-dependent economy. Some experts have suggested that the risk of China’s overseas reserve assets being frozen seems more imminent, raising concerns about the country’s financial security.
To counter potential U.S. sanctions, several Chinese researchers have proposed unconventional solutions, drawing inspiration from Russia’s policies. Wang Yongli, the general manager of China International Futures, and PBOC researchers have recommended that if the U.S. implements Russia-style sanctions on China, Beijing should freeze U.S. investment and pension funds and seize the assets of U.S. companies.
Additionally, some experts have proposed reducing China’s dependence on the U.S. dollar. The Beijing-based China Center for International Economic Exchanges (CCIEE) has published analyses suggesting China should promote more gold-denominated trade to stabilize the yuan. This approach mirrors the Russian central bank’s decision to increase its gold reserves since the Ukraine war began.
Amid concerns about potential sanctions, some researchers have also explored strategies related to energy and alliances. They argue that China should push for more yuan pricing in international trade to reduce the dominance of the U.S. dollar, much like Russia’s decision to demand roubles for its natural gas. Furthermore, some experts have called for emergency plans to guarantee the supply of strategic metals, especially given the suspension of Russian nickel products from the London Metals Exchange.
To protect against potential sanctions, Chinese researchers have suggested creating a new economic grouping that could strengthen China’s position in a sanctions tit-for-tat scenario. They have also proposed exploiting divisions within the European Union and among the U.S. and its allies.
Some analysts, however, have highlighted the limits of yuan internationalization and argued that China should increase its economic ties with the U.S. and its allies to blunt the impact of potential sanctions. They contend that the close economic and financial relationships between the two countries make it unlikely that the U.S. would take extreme measures against China.
In response to these issues, many researchers have suggested that Beijing should further open its domestic financial markets to align the interests of the U.S., its allies, and their companies with China, thus increasing the costs of imposing sanctions.
The future remains uncertain, and while China evaluates various strategies to counter potential U.S. sanctions, the dynamics of international relations and global economics will continue to shape the path forward.
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