The Biden Administration would create global financial instability, while damaging the United States’ already tenuous ties with Beijing, if it carried out threats to sanction Chinese banks over their trade with Russia, and even cut China out of the Swift global interbank system, analysts said. The Wall Street Journal reported that the U.S. government was drafting sanctions to help U.S. Secretary of State Antony Blinken persuade Beijing to stop any commercial support for Russia’s military production. But any financial sanctions against China would impede transactions in Europe and the U.S., the analysts said. “The U.S. would be creating a gargantuan source of financial instability for not only China, but also itself,” said Brian Wong, Fellow at the Center on Contemporary China and the World at the University of Hong Kong. “This could severely impede the interests of American companies and investors in China, especially given the likely retaliation that would come either immediately, or in due course.”
The possible removal of China from the Swift network is a “nuclear option” that would lead to a “significant logjam in transactions and clearing for trade, which would culminate in cost-push inflation across the board”, Wong added. China’s foreign trade reached CNY41.76 trillion in 2023. The Society for Worldwide Interbank Financial Telecommunication network (Swift) allows roughly 11,000 financial institutions to exchange money transfers. The European Union and other countries removed some Russian banks from the network in 2022 following the invasion of Ukraine. But to also cut China from the network would inconvenience companies abroad, especially in Europe where multinational companies trade robustly with China, said James Chin, Professor of Asian Studies at the University of Tasmania in Australia. “Removal from Swift will be a huge problem because China is a main trading partner for many countries around the world,” Chin said.
Washington has punished Moscow over the war in Ukraine, while China has taken a neutral stance and still conducts business with Russia. Ministry of Foreign Affairs Spokesman Wang Wenbin said that China had already imposed export restrictions on goods that could have military applications, but rejected criticism from Washington over Russia. Sanctions against Chinese banks would accelerate China’s efforts to craft its own transaction system and internationalize the yuan, analysts said. China launched the Cross-Border Interbank Payment System (CIPS) in October 2015 to provide an independent international yuan payment and clearing system connecting both onshore and offshore clearing markets and participating banks.
Reuters reported that the U.S. had “preliminarily discussed sanctions on some Chinese banks”, but with no short-term plan to carry out such measures. A U.S. official speaking on condition of anonymity said Washington hoped diplomacy would “avert the need for such action”, the South China Morning Post reports.
