China must brace for a full-blown escalation of the struggle with the United States and prepare to gradually decouple the Chinese yuan from the US dollar, a former senior Chinese diplomat warned amid the continued downward spiral in relations between the world’s two largest economies.
Zhou Li, a former deputy director of the Communist Party’s International Liaison Department – which manages relations with foreign political parties, organisations and elites – is the latest in a series of voices in China calling for the country to be ready for a currency split with the US amid growing signs of financial war in recent weeks.
“By taking advantage of the dollar’s global monopoly position in the financial sector, the US will pose an increasingly severe threat to China’s further development,” Zhou wrote in the full version of an article published on Saturday by the Beijing-based think tank Chongyang Institute for Financial Studies at Renmin University.
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China should now make preparations to insulate itself from “dollar hegemony and gradually achieve the decoupling of the renminbi from the US currency”, Zhou said. “The US dollar could become a major risk issue that ‘has us by the throat’.”
Zhou’s comments come as Washington is set to impose new sanctions on Chinese officials and financial firms for their part in the new national security law for Hong Kong. The Hong Kong Autonomy Act, passed by Congress last week, requires the administration to punish foreign banks if they continue to do business with sanctioned officials, including possibly denying them access to the global US dollar payment system.
His remarks also mirrored a growing consensus in Beijing that China should “give up the illusion” of friendship but instead prepare for a full-fledged conflict with the US.
Zhou – a member of the national committee of the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body – warned that the unlimited quantitative easing programme undertaken by the US Federal Reserve created a real risk of devaluing the dollar assets held by Chinese financial institutions, companies and individuals.
The US had been able to leverage the dollar-dominated SWIFT international payments messaging system to extend “long-arm jurisdiction” for its policies outside America, including sanctioning Russia and Iran, Zhou noted. Sanctions against energy suppliers could jeopardise China’s energy security, he warned.
China holds more than US$2 trillion in overseas investments, the vast majority in developed countries and denominated in US dollars. China also holds US$1.07 trillion in US Treasury securities as part of its US$3 trillion foreign exchange reserves.
China must accelerate the internationalisation of the yuan, speed up the increase in cross-border payments and clearing arrangements for the yuan, establish local currency settlement mechanisms with more countries, and create conditions to maximise the use of the Chinese currency in global industrial supply chains, Zhou said.
His views echoed a call by Fang Xinghai, a vice-chairman of the China Securities Regulatory Commission, who warned in a recent speech that China must make urgent preparations for being cut off from the US dollar payment system. “Yuan internationalisation is a must to offset external financial pressure,” Fang said.
US legislators have enacted a series of laws designed to punish China for alleged misdeeds in Xinjiang and Hong Kong. In addition, a Trump administration task force is looking into ways to force Chinese companies listed on US stock exchanges to share their internal accounting records, given recent scandals that have cost investors billions of dollars.
Zhou said Beijing must never underestimate the determination of both the Trump administration and the US Congress to continue to suppress China. The Chinese leadership must have a sober understanding that a complete break-up with Washington could be inevitable.
It was now certain the US government would take additional actions to suppress China, extending trans-Pacific tensions from trade to other fronts including the Covid-19 pandemic, media, Taiwan, the South China Sea, Xinjiang and Hong Kong. “In particular, it is necessary at present to keep watch for the risk that the US will demand compensation from China [for the coronavirus pandemic].”
Beijing should seize the opportunity to build China-centric regional industrial chains, given the continued devastation to overseas demand and the disruption of global supply chains caused by the coronavirus. In addition, Zhou warned, China should brace for a worldwide food crisis and the return of international terrorism during the pandemic.
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This article Time for China to decouple the yuan from US dollar, former diplomat urges first appeared on South China Morning Post