China meets with banks to discuss protecting assets from US sanctions

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Chinese regulators held an emergency meeting with domestic and foreign banks to discuss how they could protect the country’s foreign assets from US sanctions similar to those imposed on Russia for its invasion of Ukraine, according to people close to the discussion.

Officials fear the same action could be taken against Beijing in the event of a regional military conflict or other crisis. President Xi Jinping’s administration has argued that strong support for Vladimir Putin Throughout the crisis, Chinese banks and companies have remained wary of doing business with Russian entities that could lead to US sanctions.

The internal conference, held on April 22, brought together officials from China’s central bank, the Ministry of Finance, as well as executives from dozens of domestic and international lenders such as HSBC, 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 statements from a senior Finance Ministry official, who said the Chinese president’s administration had been put on high alert because of the ability of the United States and its allies to freezing the dollar holdings of the Russian Central Bank.

Officials and attendees did not mention specific scenarios, but one possible reason for the sanctions would be the Chinese invasion of Taiwan, which China claims as its territory and has threatened to invade if Taipei refuses to pass. indefinitely under his control.

“If China attacks Taiwan, the separation of the Chinese and Western economies will be much more severe than [decoupling with] “Russia is because China’s economic footprint touches every region of the world,” said one of the people briefed on the meeting.

Andrew Collier, managing director of Orient Capital Research in Hong Kong, said the Chinese government was right to be concerned “because it has very few alternatives and consequences”. [of US financial sanctions] catastrophic.”

Top regulators, including Yi Huiman, chairman of the China Securities Regulatory Commission, and Xiao Gang, who chaired the CSRC from 2013 to 2016, asked the bankers present what they could do to protect the country’s external assets, especially its $3.2 trillion in foreign exchange reserves.

China’s huge dollar holdings range from more than $1 trillion in US Treasuries to New York office buildings. The state-owned Dagia Insurance Group, for example, owns the Waldorf Astoria New York.

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“No one there can think of a good solution to the problem,” said another person close to the meeting, “China’s banking system is not ready to freeze its dollar assets or exclude them from the Swift messaging system. while the United States does to Russia.

HSBC did not respond to a request for comment.

Some bankers have suggested that the central bank could require exporters to exchange all their foreign exchange earnings for renminbi in order to increase their domestic dollar holdings. Exporters are currently allowed to retain part of their foreign exchange earnings for future use.

Others have proposed a “significant” reduction in the $50,000 quota that Chinese citizens are allowed to buy each year for overseas travel, education and other overseas purchases.

When a Chinese banker asked if he could diversify into using more yen- or euro-backed assets, he said the idea was impractical.

However, some bankers present questioned whether Washington could afford to sever its economic ties with China given its status as the world’s second largest economy, its vast holdings of dollar assets and its close trade relationship with the United States. .

“It is difficult for the United States to impose severe sanctions on China,” Collier acknowledged. “It’s like mutually assured destruction in a nuclear war.”

Additional reporting by Tabby Kinder in Hong Kong

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