The United States and China have faced many fronts, from trade and technology to Covid-19 and Hong Kong. Now, a new front may be emerging: financial.
Financial conflict between the two sides is deepening this month, as President Trump wants to prevent federal pension funds from investing billions of dollars in Chinese company stocks .
A few days later, the Senate passed a bill that required Chinese companies listed on the US floor to be financially and audited. If this bill becomes a law, dozens of Chinese companies may have to stop listing on the New York Stock Exchange and the Nasdaq.
This week, parliamentarians offered to impose sanctions on Chinese banks if China continues to enact security laws for Hong Kong. The Trump administration is under pressure to respond to China’s passage of a security bill, which could be a lifting deal for Hong Kong. It is not yet clear whether the US response is financially relevant.
After the blow to the flow of links between the United States and China, from trade, technology, to the visa, if the United States hits the next blow on capital flows, it will be the greatest challenge to the Chinese economy.
Despite the world’s second-largest scale, China’s economy still depends heavily on the US-dominated financial system.
In China, an increasingly heated debate is about how the country can withstand financial pressure.
America has the upper hand
The debate within China is ongoing. There is also a call for Chinese businesses to prepare for the risk of being denied international capital flows.
There are also people calling on China to accelerate the development of new digital currencies and new global payment systems with friendly countries such as Russia, Iran and Venezuela, so that US sanctions cannot reach. to, according to the Washington Post.
Tough voices in China have reiterated China’s “everlasting” weapon of selling US $ 1,100 billion of US government bonds – a move that will shake both the US and Chinese economies.
“The US has the advantage of a financial system. But it will not last long, the advantage may be short term. Only force China to promote the development of its own system, ”Wang Huiyao, President of China and Global Center, told the Washington Post.
According to the Washington Post , the bill that requires Chinese companies to be transparent will cause great damage – which could affect 150 companies and $ 1,200 billion of market capitalization to stop listing. Worse is the prospect that the US limits access to the Chinese dollar, which Beijing needs to pay off debt and buy everything from computer chips, oil, cereals to foreign companies.
China’s foreign exchange reserves are at $ 3,100 billion – the largest in the world, but this “warehouse of war” has dropped by 25% since 2014 because the government wants to push the currency up, according to the Washington Post.
On the contrary, Wang said the moves from the US only made China more determined to create its own space, beyond the reach of US financial power.
China’s ambition for many years has been to internationalize the currency, but the plan is progressing slowly, with only 2% of global transactions made in the currency.
Later, Chinese President Xi Jinping considered blockchain a national top priority in November 2019. By last month, China was pushing for testing of new digital currencies in several cities, the baby steps to the final goal: one day China is “free” from the dollar in international payments. .
“The US may gain a temporary advantage, but it will deeply divide the world,” Wang said. “Maybe they will regret it.”
Will more proposals put pressure on China?
Washington Post said today, the US has the upper hand of the US dollar and the US banking system has an essential role in the world. Chinese banks will wobble if the US embargo.
Senator Patrick Toomey (Republican, Pennsylvania), who drafted a draft of the Hong Kong Autonomous Law this week, made it clear that he had prepared it to put pressure on the Chinese banking industry, thereby targeting to Beijing.
“When business and financial interest groups realize it’s a tool that (US) can use, I think there will be entirely new pressure on the Chinese government” not to undermine Hong’s autonomy. Kong, Senator Toomey told reporters.
China’s economy “in the near future will depend on the US dollar to trade,” Mr. Toomey said. “So the sanctions we are proposing are likely to be very, very strong in the long run.”
Currently, it is not clear how far the Trump administration is going to financially go. In response to Fox Business this month, Mr. Trump hesitated about forcing Chinese companies to stop listing in the US, because they could switch to listing in London and Hong Kong.
However, observers say that the bills are currently very unpredictable, it is possible to go far in the context of the attitude and anti-China stance that is becoming stronger in Washington.
The proposals – limiting pension fund investment, and requiring Chinese companies to be transparent about audits – were rejected just eight months ago, but this month, both proposals went far.
A former White House official, who spoke on condition of anonymity, said there may be additional proposals that put pressure on China financially. In the wake of the post-Covid-19 tension, “everything can be so swiftly scary,” the source told the Washington Post .
Global Times, the agency of the Chinese Communist Party, published articles warning “financial war” would be a disaster for the world.
The newspaper warns this war will affect the whole world, not just the US and China. “No one knows how quickly market risk will spread and cause crises.”
Wang Wen, director of the Beijing Financial Research Institute in Beijing, believes that the Trump administration will not be so bold, like banning pension funds from investing in Chinese stocks because they will affect Pho’s profits. Wall.
“The capital-seeking nature of capital flows will still see China as one of the most sought-after markets,” he told the Washington Post . “Whoever loses the Chinese market loses the future.”