China explores ways to circumvent sanctions using Russia's example – The WSJ

An interagency group set up by China in the first months after the start of the Russian full-scale invasion of Ukraine is studying the impact of sanctions and regularly preparing reports for the country's leadership.

Source: The Wall Street Journal

Details: The purpose of the reports is to draw lessons on how to ease sanctions, especially if the conflict over Taiwan prompts the United States and its allies to impose similar sanctions on China.

As part of this effort, Chinese officials periodically visit Moscow to meet with the Russian Central Bank, Ministry of Finance, and other agencies involved in countering sanctions.

The Chinese research, which has not been previously reported, is symbolic of the new era of economic warfare unleashed by Russia's invasion of Ukraine, where the lines between economic policy and geopolitical strategy are increasingly blurred.

This trend is likely to only intensify during the second term of Donald Trump, who plans to increase the use of tariffs as a tool of negotiation and coercion.

People close to Beijing's decision-making warn that the study group's activities do not mean that the country is preparing for an invasion. According to these people, Beijing is preparing for an extreme scenario of armed conflict and its economic consequences.

One of the areas of particular concern for China is its world's largest foreign exchange reserves, which amount to more than $3.3 trillion. Measures by the US and its allies to freeze Russian assets abroad following the invasion of Ukraine have prompted Beijing to look more actively for ways to diversify its reserves away from dollar-denominated assets such as US Treasuries.

One of the main lessons for China from the Russian experience is the importance of preparation, analysts say. Before the war, Russia tried to diversify its foreign exchange reserves, de-dollarise its economy and build a domestic financial system. While its success was mixed, these steps helped protect the Russian economy and buy time to adapt.

Another lesson for China is the value and limits of coalitions. The US, UK, EU and other allies worked in unison to exclude Russia's largest banks from the Swift financial network and impose an oil price cap, while Russia responded by strengthening ties with China, Iran and North Korea.

Russia has also found a route through former Soviet republics to acquire banned Western goods – from luxury cars to dual-use goods with military applications such as microchips – as part of the so-called Eurasian bypass.

Background:

• The United States will launch the third major package of restrictions against China's semiconductor industry in three years on Monday, limiting exports for 140 companies, including chip equipment manufacturer Naura Technology Group.
• US President-elect Donald Trump has threatened the BRICS grouping with 100% tariffs if they introduce their own currency.

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