If push comes to shove in their financial row, the United States could not only sanction Chinese banks, but also seize overseas Chinese assets, a prominent Beijing adviser warned on Wednesday.
Yu Yongding, a senior fellow with the Chinese Academy of Social Sciences, a government think tank, said at a forum organised by The Beijing News that one possible scenario would be the US imposing sanctions on Chinese banks, as it did in 2012 to Bank of Kunlun, a regional Chinese lender backed by China's state-owned oil company, for financing deals with Iran.
However, barring Chinese banks from dealing with the US financial system is only one of many ways that the US could inflict pain on China in the financial realm, said Yu, a former adviser to China's central bank.
"The financial sanctions could be done in a variety of forms, targeting banks or certain industries," Yu said, adding that the US could seize Chinese overseas assets if conflicts break out. "This possibility can't be ruled out."
The recent acts by the Trump administration, such as threatening to ban TikTok if it is not sold to a US buyer, have been "shameless", Yu said. "It's really hard for us to anticipate what will come next."
His warning reflects a growing concern among Chinese researchers and officials of an all-out "financial war" between China and the US, with many saying the US side would have a clear advantage thanks to the dominant role of the US dollar in cross-border investments and payments.
The risks for Chinese banks being sanctioned by the US are becoming real after the Trump administration last week sanctioned 11 mainland and Hong Kong officials, including Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor, for their role in the alleged erosion of Hong Kong autonomy.
Financial institutions that deal with these individuals are at risk of being viewed by Washington as violating sanctions. Bloomberg News reported on Wednesday that even China's state banks with operations in Hong Kong have started to review their ties with these individuals to manage the risks.
Yu said China faces "a series of threats from the US" in terms of financial restrictions.
When Bank of Kunlun, for example, was sanctioned by the US Department of the Treasury for financing oil shipments with Iran, the lender was cut off from the dollar payment system, suffocating its cross-border business.
"Such sanctions have been used before," Yu said. "The US could continue to use them in the future. We must be very careful."
On top of that, Yu said Washington could "extort" Chinese banks by levying huge fines to get them to comply with US demands.
Yu is not alone in predicting financial troubles with the US.
While the People's Bank of China has remained largely muted, the debate is a heated one among economists and analysts in China who are speculating as to whether the US could use the Clearing House Interbank Payments System (Chips) and the Society of Worldwide Interbank Financial Telecommunication (Swift) to try to cut China off from the US dollar system.
Yu said Beijing's options are limited, and it must prepare for the worst-case scenario.
At the same time, Washington is not yet ready to go to such extremes, Yu said without elaborating.
Yu said President Xi Jinping's "dual circulation" strategy, which focuses on the domestic market to hedge against a hostile external environment, is the right choice in light of financial decoupling and sanctions risks.
"From a long-term perspective, such an adjustment will greatly enhance China's financial security and minimise the loss of a US financial war," Yu said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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