G7 Weighs Sanctions Against China in Event of Taiwan Crisis
In the event of a crisis over Taiwan, the Group of Seven (G7) nations are considering deploying economic countermeasures against China’s financial system, individuals associated with the Chinese Communist Party and People’s Liberation Army, and industrial companies relevant to China’s defense industry.
Three-Pronged Approach
According to experts, the G7 is likely to take a three-pronged approach, with varying intensity depending on the level of escalation. The measures could include:
Sanctions on China’s Financial Sector
- Targeting China’s four largest banks, its Ministry of Finance, and the People’s Bank of China could disrupt $3.7 trillion in Chinese overseas bank assets and reserves, as well as $178 billion in G7 banking assets held in China.
Sanctions on Individuals
- Imposing sanctions on individuals associated with the leadership of the Chinese Communist Party and People’s Liberation Army could have significant economic and political implications for these individuals and their families.
Restrictions on Industrial Companies
- Limiting access to international markets and restricting exports to China’s defense industry could have a devastating impact on companies involved in this sector.
Alternative Measures
In addition to these baseline scenarios, stakeholders have discussed alternative measures, including:
- Targeting casinos in Macau
- Imposing controls on China’s digital industries
- Limiting access to International Monetary Fund Special Drawing Rights
- Stopping repayments of dollar-denominated Belt and Road Initiative debt
These ideas illustrate the range of additional tools that could be brought to bear in a crisis.
Sanctions Scenarios and Their Costs
The table below outlines two primary options for imposing sanctions on China’s financial system:
| Hypothetical Scenario | Description | Economic Value at Risk | Possible Effects |
|---|---|---|---|
| Limited Financial-Sector Sanctions | Block transactions with several smaller banks with military or strategic technology ties. | Hundreds of millions of dollars in disrupted cross-border transactions. | Minimal impact on China’s financial system, low global economic disruption. |
| Comprehensive Financial-Sector Sanctions | Target China’s four largest banks, its Ministry of Finance, and the People’s Bank of China. | $3.7 trillion in Chinese overseas bank assets and reserves, $178 billion in G7 banking assets held in China. | Significant impact on China’s financial system, potential global economic disruption. |
Conclusion
The G7 is keenly aware of the potential risks and challenges associated with imposing economic sanctions on China. However, experts believe that the benefits of such measures would outweigh the costs in the event of a Taiwan crisis.
Part II: Consequences of Imposing Sanctions
To be continued…