In ‘finance war’ with US, former official says China risks staring down the barrel of a capital conundrum

Beijing slams ‘smear tactics’ in US assessment of China’s ‘predatory’ economy

Nonetheless, Chen expects that the world’s second-largest economy will be buoyed by a more vigorous capital market this year as foreign investors likely flock back to China due to interest rate trends.

But China should remain on guard, as it remains at a disadvantage in terms of financial competition with the US, Chen said.

“[We are] always in a state of being contained, suppressed and harvested,” she said. “The status of the US dollar is still there, and the strength of the US is still there. Any increase or decrease in interest rates by the Federal Reserve will have an impact on us.”

Describing foreign investors’ retreat from China in the past year as evidence of a “finance war”, while their bearish sentiment toward China is the result of a “public opinion war”, Chen also said that Hong Kong must strengthen its status as a global financial centre.

Ensuring the safety of US-listed Chinese company assets should be another priority for Beijing in the two sides’ financial wrangling, she noted.

Washington has been pushing Chinese firms to delist from the New York Stock Exchange, and she pointed to the delisting of five state-owned Chinese companies, including energy and chemical giants PetroChina and Sinopec in 2022.

And after the US presidential election later this year, more companies could be forced to delist, depending on whom is elected, she warned without naming names.

But while acknowledging that financial decoupling is a lingering threat facing the two economic superpowers, some US-based researchers say that deeming the situation a “finance war” is an overstatement.

Yan Liang, chair of economics at Willamette University in the US state of Oregon, said some in China may be advancing the idea of a finance war because of the upcoming National People’s Congress meeting, as “financial stability is one of the emphases”.

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“Some people are afraid of liberalisation of the financial sector,” Yan said. “There are many scholars in China warning against liberalising the [nation’s] capital account, which may allow US dollar holders to ‘grab our assets’.”

“Financial decoupling” is possible, including via measures that could include restricting stock market listings of the other sides’ companies, she added.

Ker Gibbs, former president of the American Chamber of Commerce in Shanghai and a current executive in residence at the University of San Francisco, said Beijing is already adjusting its financial system in anticipation of any sanctions by Washington resulting from a potential cross-strait conflict between mainland China and Taiwan.

“That’s happening now, and it’s going to accelerate,” he said.

James Chin, a professor of Asian studies at the University of Tasmania, said that any decoupling between the two big financial markets would present challenges.

“One of the lessons we learned [from the Ukraine-Russia war] is that it’s not so easy to cut a country off,” he said.