China’s aggressive behaviors against Taiwan and in the South China Sea raise concerns among financial experts about the country’s overseas assets. The sanctions imposed on Russia by the United States and its allies have given them a reference example.
The PBC School of Finance, Tsinghua University, held a forum at the weekend with the theme “2022 in Turmoil—Global and Chinese Economic and Policy Outlook.”
According to SecterChina, a press release on May 16 revealed that the participants expressed their worries about the structure of China’s 2 trillion dollar international net assets.
Yu Yongding, a member of the Chinese Academy of Social Sciences, said that China needs to adjust China’s overseas asset-liability structure to reduce the proportion of foreign exchange reserves in overseas assets.
Yu believes that China’s foreign exchange reserves yield is extremely low, and the proportion of foreign exchange reserves in overseas assets is too high.
Yu said that although China has net overseas assets of 2 trillion dollars, its investment income rate has been negative for more than ten years, or even almost 20 years.
This situation is in sharp contrast to the United States. The U.S. has a net debt of 10 trillion dollars but has tens of billions or hundreds of billions of investment income each year. Investment income in 2021 is 200 billion dollars.
After Russia invaded Ukraine, the U.S. froze Russia’s foreign exchange reserves of 300 billion U.S. dollars. It is unimaginable to take such a measure against a nuclear power.
China has been prepared for decades to become involved in a military conflict over issues such as Taiwan or the South China Sea. Beijing could even challenge the U.S. in some ways.
Yu Yongding believes that a potential geopolitical conflict between China and the U.S. could pose a severe threat to the security of China’s overseas assets, especially its foreign exchange reserves.
Yu Yongding, who once served on the Monetary Policy Committee of China’s central bank, proposed some countermeasures.
First, he said China should reduce its holdings of U.S. treasury bonds and increase its holdings of other forms of assets.
Second, China should boost its investment in strategic resource-producing countries, such as Central Asia, especially in Arab oil fields.
Third, China should keep its promise and seriously protect the investment of foreign investors in China.
Fourth, China should use technical means, IT technology, and digital currency protection measures.