Is China preparing to invade Taiwan? Beijing orders officials to find ways to protect the nation from Western sanctions like those used against Russia
- China held emergency meeting with regulators ahead of sanctions
- Regime seeks to protect its $3.2 trillion in foreign exchange reserves
- Banking officials from HSBC and other international lenders have been invited
- West would consider sanctions if China invades Taiwan
- China has stepped up its military activities in the region as the United States held high-level talks with allies, including the United Kingdom, over the possibility of a Chinese invasion.
Chinese officials are looking for ways to defend the country from economic attack should the West seek to sanction China in the same way it has with Russia – stoking fears the country is preparing for an invasion from Taiwan.
Chinese regulators held an emergency meeting on April 22 between officials from China’s central bank, finance ministry, domestic banks operating in China and international lenders such as HSBC.
The West’s tough economic sanctions on Russia prompted the emergency meeting, with the Finance Ministry saying President Xi’s administration had been put on high alert by the surprise dollar freeze.
The news comes as the UK and US held high-level talks on how to handle a crisis in Asia, should China invade Taiwan.
China claims Taiwan as part of its territory despite the island nation operating under a separate government since 1949.
Taiwanese President Tsai Ing-wen (right) talks to US Senator Lindsey Graham (left) and other US officials during their visit inside the presidential office in Taipei. Chinese regulators held an emergency meeting on April 22 between officials from China’s central bank, finance ministry, domestic banks operating in China and international lenders.
People lie on the ground to represent the dead outside Liberty Square during a protest in Taipei against Russia’s invasion of Ukraine. Chinese officials are looking for ways to defend the country against economic sanctions if the West were to seek to sanction China the same way it did with Russia
The United States is believed to be considering proportionate sanctions against China in the event of an invasion of Taiwan, considering a scenario similar to that unfolding in Ukraine.
WHY IS CHINA WORRIED ABOUT FOREIGN CURRENCY SANCTIONS?
Russia has about $630 billion frozen by foreign sanctions, a buffer fund designed to help it prop up the value of the ruble.
But Russia is only the seventh-largest holder of currency reserves in the world, making it less vulnerable to such sanctions than countries more dependent on the international system.
China, on the other hand, is the world’s largest holder, according to the IMF, with $3.2 trillion in foreign currency reserves.
After its economic miracle that propelled China to the rank of second largest country in the world, China has sustained its growth by increasing its exports to the rest of the world.
A key part of the expansion has been copying Western products, finding ways to produce them in larger quantities, and then reselling them to the West at cheaper prices — boosting the Chinese economy.
One of the ways China is able to keep prices cheap is by keeping the renminbi less valuable than the US dollar, for which it has been called a currency manipulator.
Most countries allow the exchange rate of their currency to be decided by international lenders, but the People’s Bank of China only allows the dollar to be exchanged for a fixed amount of renminbi – a lower amount than would be accepted without government intervention, keeping Chinese products cheap and competitive.
But such a tactic forces China to hold more dollars than it otherwise would, leaving it with a huge amount of dollars.
Because of its export market, China now holds around 3.68% of the US’s $28.9 trillion national debt, making it vulnerable to the same type of foreign asset freeze imposed on Russia’s central bank. .
“No one there could think of a good solution to the problem,” said a source quoted by the Financial Times. “China’s banking system is not prepared for a freeze on its dollar holdings or an exclusion from the Swift messaging system like the United States did for Russia.”
China is looking to increase the amount of renminbi in circulation relative to its US dollar holdings.
One idea was to force exporting Chinese companies to give up their dollar holdings in exchange for renminbi.
Another suggestion was to reduce the $50,000 quota that Chinese nationals are allowed to purchase each year for overseas travel, education and other overseas purchases.
Other potential solutions such as swamping some US dollar holdings into euros weren’t seen as practical, but some doubted the US had the ability to sanction China – the world’s second-largest economy – in the same way it does. they did with Russia.
“It is difficult for the United States to impose massive sanctions against China,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “It’s like mutually assured destruction in a nuclear war.”
Although Chinese companies have refrained from openly doing business with Vladimir Putin’s regime since he gave the order to invade Ukraine, President Xi Jinping has reportedly retained some economic ties with Russia.
Kurt Campbell, the White House Indo-Pacific coordinator, and Laura Rosenberger, China’s top National Security Council official, held a meeting in Taiwan with British officials in early March.
The United States is looking to boost cooperation with European allies, as well as engage with Japan and Australia after Beijing stepped up military activity.
China is continually violating Taiwanese airspace, ramping up deployments over the past year.
“Deterring Chinese aggression against Taiwan is in everyone’s interest. It’s not just an Indo-Pacific problem, it’s a global problem,” said Heino Klinck, a former senior Pentagon official for Asia. “US military planners are not counting on Germany or France sending warships, or Britain sending an aircraft carrier in the event of a conflict in Taiwan.
“But when these countries send ships to the South China Sea or transit through the Taiwan Strait, it sends a strong signal to China.”
Russia has about $630 billion frozen by foreign sanctions, a buffer fund designed to help it prop up the value of the ruble. China, by contract, is the world’s largest holder of currency reserves, according to the IMF, holding $3.2 trillion in currency reserves.
Why China has set its sights on Taiwan
Taiwanese soldiers raise the Taiwanese flag in Taipei on May 10. China considers Taiwan part of its territory, but many Taiwanese want the island to be independent
China and Taiwan have a long-standing dispute over the island’s sovereignty.
China considers Taiwan to be part of its territory, more specifically a province, but many Taiwanese want the island to be independent.
From 1683 to 1895, Taiwan was ruled by the Chinese Qing dynasty. After Japan claimed victory in the First Sino-Japanese War, the Qing government was forced to cede Taiwan to Japan.
The island was under the control of the Republic of China after World War II, with the consent of its allies, the United States and the United Kingdom.
Chinese Nationalist Party leader Chiang Kai-shek fled to Taiwan in 1949 and established his government after losing the civil war to the Communist Party and its leader Mao Zedong.
Chiang’s son continued to rule Taiwan after his father and began to democratize Taiwan.
In 1980, China proposed a formula called “one country, two systems”, under which Taiwan would be granted significant autonomy if it accepted Chinese reunification. Taiwan rejected the offer.
Taiwan today, with its own constitution and democratically elected leaders, is widely accepted in the West as an independent state. But its political status remains unclear.