The following is from an article by Hideo Tamura that appeared in yesterday's Sankei Shimbun.
He is one of the few real economic commentators globally, and his article is a must-read not only for the Japanese people but also for people around the world.
International cooperation on financial sanctions against China
As I argued in the "Sunday Economic Lecture" of this paper on April 25, to support China's ambitions of foreign expansion, the Xi Jinping regime is in foreign debt.
However, the Western world is reluctant to take financial measures against China.
It is because they are afraid of disrupting the global financial markets.
The phrase "too big to fail" was used to describe financial institutions that fell into financial crisis after the bubble economy burst.
In China today, the financial institutions are already massive and have come to hold a large share of the international financial market.
So while Chinese finance may be "too big and untouchable," it drives away the principles of the free world, which are far more essential and prioritized than financial market stability.
Financial capital in Japan, the United States, and Europe expands its bases in Hong Kong and significantly increases finance to mainland China via the Hong Kong market. Even if Hong Kong's high degree of autonomy is destroyed and democratic forces are thoroughly suppressed.
The Biden administration has shelved the provision set by the previous Trump administration to suspend the free exchange of the Hong Kong dollar for the U.S. dollar. It is indifferent to sanctions against Chinese financial institutions.
Even though the U.S. administration has vehemently condemned the appalling human rights violations in Xinjiang, it has not frozen the dollar financial assets of the central leaders of the Chinese Communist Party in Beijing and their families.
The Europeans have sympathized with the U.S.
It is not the first time that the U.S. has been soft on China regarding financial considerations.
In a meeting with Chinese officials, O'Neill, the Treasury Secretary of the Bush (Son) administration, who visited China just before the September 11, 2001, terrorist attacks, reportedly agreed with Chinese concerns that China's transition to a free-floating exchange rate system for the yuan could lead to the collapse of the Chinese economy and approved the continuation of the yuan's peg to the dollar. It is reported that he agreed to continue the pegging of the renminbi to the dollar (from Mr. O'Neill's memoirs, "The Price of Loyalty").
Toward the end of the Obama administration, it discovered that the Bank of China, one of China's largest state-owned commercial banks, was financially supporting North Korea's development of weapons of mass destruction. However, the Obama administration decided not to impose sanctions on the Chinese bank.
In this case, the sanction would be the suspension of dollar transactions. Still, the Obama government feared that if the Bank of China, which accounts for a large share of dollar transactions in the international financial market, could not raise funds, it could lead to an international bank run against the Bank of China (Foreign Policy, April 17, 2005).
Compared to that time, the presence of China's central banks has become even more significant.
According to the 2021 edition of "The World's 100 Largest Banks" compiled by the U.S. credit rating agency S&P in April, China's four largest state-owned commercial banks dominated the ranking of total assets, which indicates the size of the banks, and their assets increased by 16.9% from the 2020 edition.
All four banks are ahead of Japan's Mitsubishi UFJ Financial Group and the U.S. firm JP Morgan Chase.
Of course, most of the assets of China's central banks are in yuan-denominated assets for domestic use, but their dollar assets and liabilities have also continued to snowball.
Particularly apparent is the size of their bond issuance in international financial markets.
According to statistics from the Bank for International Settlements (BIS), China's issuance of debt securities in the international financial markets, mainly by banks, has continued to increase since the Lehman shock in September 2008. By the end of 2020, it had increased by $1.2 trillion from the end of 2008. The global total was up $0.34 trillion, with China supporting the international debt securities issuance market, which is shrinking due to the new coronavirus pandemic.
Underwriting and buying, and selling foreign currency-denominated debt securities traded in the international financial markets support the profits of financial capital in Japan, the United States, and Europe, such as central U.S. banks.
For the Xi administration, it can comfortably carry out its foreign expansion strategy while being supported by the rapid increase in foreign dollar debt.
On the other hand, the financial capital of the Western world will increasingly look to its claims on China as a source of revenue.
U.S. financial capital has long exercised significant influence over successive administrations in Washington.
Only the former Trump administration advocated an "anti-Wall Street" policy. Still, financial sanctions against China fell by the wayside, and the Biden administration returned to cooperating with Wall Street as it did during the Obama administration.
The Biden administration has become reluctant to impose financial sanctions against China, which could threaten the profitability of U.S. financial capital.
In this light, the Western world may have no shortage of economic tools to curb the Xi administration's violent foreign expansion and violation of international rules.
The effect of the sanctions imposed by the previous Trump administration on China was blown away by the Corona disaster.
In the first place, it is unreasonable to use high import tariffs, which are incurred by consumers in their own country, as the primary means of sanctions.
There is no time to wait to deter the Chinese threat.
The Western world should seriously consider countermeasures on the financial front and cooperate internationally.
