Xi, Seeing Impact Of Curbs on Russia, Touts Self-Reliance

"Chinese leader Xi Jinping is raising ramparts to make his nation more self-reliant, a mission Russia's war in Ukraine has made more imperative.

China has pumped billions of dollars into semiconductor production, stockpiled grains and oil, and established international links to its financial system. At the root of the push is the fear of getting blocked out of Western economies by heavy penalties of the sort the U.S. and European Union have thrust at Russia.

No stranger to the bite of U.S. sanctions, China could face more significant ones in the case of a military confrontation with the U.S., perhaps over Taiwan, or if Beijing offers pivotal assistance to Moscow.

It wasn't missed in Beijing that when confronting Moscow, "the Western powers moved with tremendous alacrity and as a united front," says Eswar Prasad, the International Monetary Fund's former China division chief and now a professor of trade policy at Cornell University.

China's much-larger economy is more difficult to cut off than Russia's. Nonetheless, Mr. Prasad says, "One lesson that China is probably taking from the fallout is it remains vulnerable to financial, economic and technological sanctions."

During Mr. Xi's time in office, three successive U.S. administrations have leveled sanctions at China, including Huawei Technologies Co. and companies with alleged military ties as well as officials and entities Washington holds responsible for human-rights abuses.

Each move has appeared to deepen Mr. Xi's quest for self-reliance.

A day after Western sanctions on Russia, an editorial in the Communist Party's People's Daily said, "Independence and self-reliance ensure that the cause of the party and the people will continue to move from victory to victory."

In contrast to Russia's weak manufacturing sector and an export base dominated by commodities like oil and gas, China has large scale and broad reach in production. "This is China's advantage," crowed a March commentary in the nationalistic tabloid Global Times.

China supplies a third of the world's textiles, more than 27% of its electronics and almost 20% of the machines, according to data from Harvard's Center for International Development. It is virtually the only exporter of rare-earth metals necessary to make items from night-vision goggles to batteries for electric vehicles like Teslas.

A Russia-style retreat from China wouldn't be easy for the American economy. A U.S. Chamber of Commerce-Rhodium Group report last year estimated that if half of the U.S. investment in China were abandoned, it would cost American companies $25 billion annually in lost profit, with the aviation, chemical and medical sectors particularly hard hit, on top of a $500 billion hit to the U.S. gross domestic product.

Wang Wen, executive dean of Chongyang Institute for Financial Studies at Renmin University in Beijing, argues that multilateral coordination would be too unwieldy against an economy 10 times the size of Russia's and that Beijing would power through the challenge, much like it did during the Trump administration's trade war.

Ray Dalio, founder of hedge fund Bridgewater Associates who has argued China is rising at the U.S.'s expense, says that if sanctions on Russia work, it would enhance U.S. leverage. However, Mr. Dalio wrote in April, "If they are not effective, we will risk seeing America lose its most unique and greatest power -- its control over the world's reserve currency and capital-markets system -- as others increasingly escape it."

Ultimately, the dollar is the choke-point that makes U.S. sanctions effective.

On paper, China is exceptionally rich with little international debt and $3.2 trillion in foreign-exchange reserves. But how much of that money China could access during a conflict with the U.S. was thrown into doubt when the U.S. Federal Reserve and other leading central banks froze about half of Russia's $600 billion in reserves after its invasion.

Mr. Prasad said Beijing stands at a dangerous point in its financial-market liberalization, since foreign institutional investors have pumped in enough money to inflict pain if a loss of confidence prompts them to race for the exits but not enough where the state has much leverage over them and their home governments." [1]

1. World News: Xi, Seeing Impact Of Curbs on Russia, Touts Self-Reliance
Areddy, James T.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 04 May 2022: A.20.