“Such things have already happened to many Russian
businesses and financial institutions. We have to
make preparations early – real preparations, not
just psychological preparations,” Fang said at a
forum organised by Chinese media outlet Caixin.
Fang’s comment came at a time when Washington is
pondering how far it should go to use the US
dollar’s key role in international payment to
punish Chinese individuals, companies and
financial institutions for alleged involvement
in issues such as Xinjiang and Hong Kong.
The US dollar payments
system, which is underpinned
by infrastructure such as
the SWIFT international
payments messaging system
and the Clearing House
Interbank Payments System
(CHIPS), is the backbone for
international trade and
investment.
Fang’s speech showed that
Beijing policymakers are
factoring US financial
sanctions as a realistic
risk as being cut off from
the US dollar system could
seriously hinder an entity’s
capabilities of conducting
international business.
The risk, though, is
seen to be low that
China will be
treated in the same way
as Russia,
after the US responded
to numerous events,
including the
"annexation" of Crimea
by Russia in 2014.
According to a US
congressional research
service document, dated
March 30, the US imposed
sanctions on Russia “in
response to its invasion of
Ukraine, election
interference, other
malicious cyber activities,
human rights abuses, use of
a chemical weapon, weapons
proliferation, illicit trade
with North Korea, and
support to Syria and
Venezuela”.
US President Donald Trump, for example,
confirmed he held off on imposing tougher
sanctions on Chinese officials blamed for a
crackdown on China’s Uygur Muslim minority
in Xinjiang as he feared that such moves
could affect trade negotiations with
Beijing, according to an interview published
on Monday by American news website Axios.
But, despite that, there are growing signs
of financial decoupling between the world’s
two largest economies.
The US has increased scrutiny of Chinese
firms listed within its borders, and many
US-listed Chinese companies, including
Alibaba, NetEase and JD.com, have floated
shares in Hong Kong. Alibaba is the owner of
the
South China Morning Post.
At the same time, Fang said the value of the
US dollar is facing an uncertain future due
to additional money being printed by the US
Federal Reserve, posing risks to China’s
holdings of US dollar-denominated assets.
China holds over US$2 trillion of
outbound investment stock, having
increased it by US$110.6 billion last
year, a vast majority of which is
located in developed countries and
China also holds US$1.07 trillion of
US treasury bills.
“Yuan internationalisation is a must to
offset external financial pressure,” Fang
added. “If our overseas assets were held in
yuan, there won’t be such worries [over US
dollar devaluation].”
The Chinese government has been trying
to
boost the international use of yuan
in the last decade. It has
obtained a nominal “reserve currency”
status after it was included in the
basket underlying the Special Drawing
Rights, an accounting unit at the
International Monetary Fund, however,
the real cross-border use of yuan is
still limited compared to the US dollar.
The Chinese currency’s share of
international payments dropped to sixth, or
1.79 per cent of the global share in May,
far behind the US dollar on 40.88 per cent,
the Euro on 32.9 per cent, and the Japanese
yen on 3.53 per cent, according to SWIFT
data.
Frank Tang joined the SCMP in 2016 after a
decade of China economy coverage and government
policy analysis. - "Source"
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