In the frantic weeks that followed Russia's invasion of Ukraine, China's most senior officials struggled to understand the consequences the conflict had created. Chinese economy
As tensions escalate between Washington and Beijing over trade and Taiwan, the Chinese regime fears it could soon face the same tough sanctions that the West has rushed to impose to Moscow.
Representatives from all major domestic and foreign banks, including HSBC, were reportedly summoned to an emergency summit where concerned central bank and finance ministry officials demanded to know what steps could be taken to protect the country's economy in the future. event of Western economic activity.
The Xi administration has been particularly alarmed by the ability of the US and its allies to freeze the dollar assets of the Russian central bank. They wanted to know how they could protect China's $3.2 trillion in foreign exchange reserves.
On the one hand, the regime was right to be concerned. Last year, a report published by the Atlantic Council, a Washington think tank, and the New York-based research firm Rhodium Group analyzed various sanctions scenarios in the event of a major escalation over Taiwan.
It found that in the most extreme scenario, involving sanctions on China's largest financial institutions, “at least” $3 trillion in trade and financial flows “would be at immediate risk of disruption.”
The risks for both sides are massive. A close look at President Xi's economic maneuvers suggests that he has been quietly preparing for such a confrontation for years.
New World Order
In fairness, it must be said that the West was not completely passive in the face of the growing threat of war. Donald Trump's calls for a “decoupling” from China during the pandemic have prompted a rapid reassessment of ties.
While G-7 countries have taken pains to dismiss the prospect of such a rift, they have acknowledged the need to reduce dependence on the second-largest economy world as part of a “risk-reduction” policy.
Diana Choileva, chief economist at Enodo Economics, says this all amounts to a “fundamental change in the way the world works.”
Agatha Desmarais, a senior fellow at the European Council on Foreign Relations, notes that countries at odds with the West have long pursued policies designed to protect themselves from any confrontation, chief among them the People's Republic.
China is building up its military on a “scale not seen since World War II” Photo: Yu Bo/VCG via Getty Images
“Western countries did not invent this policy. If there is an innovator and global leader in delinking and risk reduction, it appears to be Beijing,” Desmarais said in a recent Foreign Policy article.
China is looking to develop its own food industry and microchip factories played out in plain sight. But in the financial markets and out of sight, another battle is being waged to limit the country's dependence on the Western financial system.
Indeed, Desmarais believes China's attempts to reconfigure the global financial order are so extensive that it is effectively “laying the groundwork for a move away from Western financial channels.” “China is building an entire edifice of financial mechanisms that are resilient to the West,” she says.
As China builds up its military on a “scale not seen since World War II,” according to U.S. Navy Admiral John Aquilino. At the same time, Beijing is strengthening its economy for war.
China's Golden Era
Days after US Secretary of State Antony Blinken visited Saudi Arabia last June, the Gulf Kingdom hosted the 10th Arab-China Business Conference.< /p>
More than 3,000 officials and business leaders gathered and posed for selfies under bright green chandeliers at the King Abdulaziz Convention Center in Riyadh. Billions of dollars of deals between China and the Middle East immediately followed, including a $5.6 billion agreement between Chinese electric vehicle maker Human Horizons and the Saudi Arabian Ministry of Investment.
China has achieved financial stability by establishing close ties with the Middle East. Photo: BANDAR ALJALOUD/Shutterstock
China is investing in the Persian Gulf on a massive scale. Chinese enterprises announced $16.2 billion worth of investments in Saudi Arabia between January and September last year, a record high, according to fDi Market. In 2022, that figure was just $1.3 billion.
This wave of investment is helping China improve its financial strength, says Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis.
The Saudi rial, like other Gulf currencies, is pegged to the dollar. “They're buying dollar-denominated assets, but they're not dollar assets—they don't have the risk of being confiscated,” Garcia-Herrero says.
By one key measure, China is much more vulnerable to this type. financial sanctions than Russia, says Ken Rogoff, a Harvard professor and former chief economist at the IMF. “Russia’s reserves amounted to several hundred billion dollars. China's dollar reserves are probably at least a couple of trillion.”
Investing in Saudi Arabia is just a small part of China's race to build assets that will be immune to Western sanctions.
The Central Bank is taking steps of an even larger scale. The People's Bank of China (PBOC) began record gold purchases in October 2022, amassing $170bn (£135bn) in reserves.
It bought 27 tonnes of gold in the first three months. this year its total reserves reached 2,262 tons, the highest ever. He has now been buying gold for 17 straight months, his longest streak since 2000, increasing his holdings by 16%.
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