Sanctions on China: where are we heading?

is Maya Lester and I'm co-hosting this with Michael O'Kane senior partner of Peterson Peters and europeansactions.com at the end of January last year we hosted our last webinar at European sanctions which was on what next on sanctions if Russia invades and as everyone working on sanctions since then knows from a policy or legal perspective the world has gone completely sanctions mad since then we thought it was a good time while everyone is still constantly focused on Russia to start thinking about possible Futures and what we should all potentially be thinking about next on sanctions which obviously very much follow the world stage there is concern or speculation about what sanctions might look like if China were to take action in Taiwan uh and including of course on to what extent we can learn from the Russia sanctions handbook or not so I'm delighted to have invited to this webinar some incredibly experienced uh thinkers on this topic joining us as Cindy you the assistant editor of The Spectator presenter of The Spectator Chinese Whispers podcast which is a fantastic resource and many fascinating articles on China and other topics in The Spectator also David Wilbur who's of council at Gibbs and Don and Crutcher in Hong Kong previously Gibson in DC and New York he took a five-year break I'm not sure break is the right way to describe it but certainly from Gibson to serve as Global Financial crime legal advisory at mufg Financial crime in New York and HSBC in Hong Kong we also have Chloe Cena who is the head of global sanctions advisory at Deutsche Bank before that a British government legal advisor at the foreign and Commonwealth office and head of UK sanctions at HSBC so we are delighted we have an hour uh there is an opportunity to ask questions in the in writing in the questions box which I'm hoping you will find on your screens um and there may be time at the end to ask questions too so there should be two opportunities uh the way we will run this is I hope as a lively conversation uh starting with Cindy so over to Michael to to kick the questions off please Maya thank you very much um Cindy we're delighted that you're able to join us this lunchtime so before we get too stuck into the detail in relation to uh sanctions specifically as far as China is concerned perhaps you could just take a few moments to set the scene all of us on what the current relations are like between the west and China thank you so much for having me as well um I think that what we see when what we see disguised by the phrase the West is actually a lot of different opinions on China at the moment that actually the West doesn't necessarily exist when it comes to approach to China for understandable reasons the view from DC Washington is um you know the one that we here in London hear a lot and also probably around the world as well and it's clear that the US has a pretty hard line position on China at the moment that Joe Biden hasn't uh changed much in in terms of the actual substance of the U.S approach to China since Donald Trump um and if you put that on one side then I think I guess on the other side you've got people like macron in France who want to actually have much more of an independent approach to China much more pragmatic and some people might say appeasing approach to China as well just to say that you cannot ignore the world's second largest economy cannot even contain it but you have to work with it and actually you might get benefits from doing that as well and I would say those are probably the two major polls in the West's approach to China and then in between there are all sorts of Shades I mean the UK has flip-flopped as people on this school will know over the last 10 to 10 years really we haven't really known what to do with China gone from the Golden Era to list trust possibly declaring genocide in xinjiang and then now as of last week James cleverley talking about this robust pragmatism and I think the answer must be somewhere in the middle you know we have to keep engaging with China but we also have to be clear that security we're moving into era of History where security is becoming much more important than simply free trade um compared to say the 90s um and then of course I think you know there's heated rhetoric on top of that you know I think most politicians would say that we want to keep working with China we know we've got to keep elaborating on things like climate change all sorts of things but not more all politicians can achieve that given the rhetoric that they've used in the last few years so One issues such as xinjiang are brought up you know this moralistic approach makes it very very difficult for a politician to walk back how do you collaborate greater how do you work with the country that is if you believe it committing genocide so that is the tricky part is that even if all politicians want to engage on some level how do those with the fiercest rhetorics with um essentially mannequin rhetoric on this how do they approach going forward and I think that's something that all countries are really kind of dealing with at the moment um and so I think it's very interesting times that we live in um and I would just say that you know it requires a lot of cool heads uh as ever in international relations but we're dealing for the first time in modern history the West is dealing with a rise in China um so in some ways this is an unprecedented uh challenge um if you talk you talk about a rising China and in particular it's interesting to see China's influence in What would most people would describe as sort of the developing World um there was a interesting quote I read recently from Larry Summers he was creating a senior official in a developing country who said that um you know what we get from China is an airport what we get from the United States is a lecture the spinal cord of China's influence has been this belt and Road initiative that obviously has been going under Xi Jinping for some time is that is that is that would you say that was real that that initiative and the the relationships that have been forged and how strong do you think those alliances are great question I I don't I don't think it's nearly as solid as it can seem um often portrayed in the media uh or out of the fears anxieties of Western politicians um if you look at the scheme itself and there's a really interesting report out recently that actually said that 78 billion dollars of that money has been written off or renegotiated in the last three years now depending on who you ask them about the size of the project itself that's somewhere you know around a quarter of the amount of loans that's been given out that has been actually written off so I don't actually think it's a good investment on the side of Beijing to have committed to this um what happened was clearly they thought they could buy friendships do this and to some extent they have um if you look at the UN for example developing countries are much more likely to be supportive of China on various issues even if it you know if they're a Muslim country and it is a it's an issue impinging on the xinjiang question you know they can still all be supportive of the Beijing position there and yet at the same time um you've also the Belton Road initiatives has also given a lot of local politicians opposition politicians public opinion in these countries that are often less than Democratic a reason to say to bash the existing government you saw that in Thailand for example during covid the anti-government protests one of the um one of the demands of the protesters was actually to not have the Chinese vaccine So Thai protesters were taking it upon themselves to protest against having this closer relationship with China as part of their domestic political protest which I thought was just a fascinating moment so in some ways the Baltimore initiative has actually turned some public opinion against Beijing now that Larry Summers quote I think is fascinating because I think what it reveals is when I very much agree with it as well what it reviews as a neocolonialist view that I think the West still has when it comes to talking about the developing world and what I mean by that is too often in the narrative and the reporting around the Barton Road initiative about being about it being detract diplomacy modern day colonialism I personally see it as reflecting a western Colonial guilt actually that tries to see and project everything that other countries have done since Empire and to try to fit it into that same box and actually it's not exactly the same and actually I don't think that lens necessarily helps you illuminate as it does just help to mold your pre-existing opinions on it um and when it comes to these developing countries you know having said that I don't think public opinion is swayed by it it's clearly a lot of authoritarian governments are um and for those authoritarian governments they don't want to lecture they don't want um Aid with strings about democratization or liberalization especially if liberalization means opening up an economy to competition internationally at the time when actually having some protections for those nascent state champions might be a good thing um a lot of these countries don't get that from China all they get is the money and you can question how long lasting these projects are how how useful valid they are but at the same time for the local governments um they are often very welcome but I think I I think we just need to disaggregate which who we're talking about when we're talking about this you know we're talking about the governments often authoritarian governments are we talking about the opposition parties we're talking about public opinion all of these things and I think the Bottom Road initiative is much more complicated than simply some modern day colonialism so so when it comes to considering sanctions in relation to China a great deal of the focus now uh increasingly filling up the opinion Columns of newspapers and magazines is around what may be happening in the future the nearest medium or short long-term future with with China's relationship with with Taiwan um I think Henry Kissinger has now said that we're in a we're in Cold War II um and so in terms of the United States relationship with China vis-a-vis the Taiwan situation and the European relationship with China these would be the Taiwan situation do you see do you see differences emerging and what's your assessment of sort of China's current position on this well I mean clearly macron money the waters a little bit when you visited China recently by pretty much suggesting that Taiwan was an internal issue and that's I mean that's the CCP line really so I think Beijing would have been quite pleased about that but I think um despite President Biden's gaffes um most of the time the Chinese still see strategic ambiguity as the way that the US is treating the Taiwan issue and let's be clear it is the U.S that is the main major uh Western power whose opinions on Taiwan are important here as much as Europe is important it's simply not a Pacific Power in the same way that the US is um and so strategic ambiguity this policy that the US has had ever since uh recognizing communist China is to say basically if you make a move on Taiwan we're not really going to say what we're going to do we could come into their defense or we don't have to and it's seen as a double deterrence on the one hand it deters the CCP from invading because they don't know to what extent resistance will be uh will be carried out by the us but on the other hand it deters the Taiwanese as well from declaring independence because they don't you know if the Americans will come to their aid either now I think that policy is still alive as I say despite President Biden's gas about coming to the aid of Taiwan and I think it's very important to keep the Chinese guessing about the strength of American um counter action because otherwise you know I mean that's that's a very good deterrence in that situation and I think even though president macron has made very friendly noises there as I say the US is the Pacific Power that China cares about about the most when it comes to the Taiwan issue and it knows that actually probably the UK and France and Germany might be on the fence about defending Taiwan but all of that none of that almost matters as long as the US will still come to taiwan's Aid so I think it's it's basically still a game of checking at the moment perfect or that's wonderful scene setting thank you very much let me pass over to Maya now to to deal with the more sort of sanctions related issues David um I suppose is it fair to say the most significant sanctions on China so far are these U.S fairly significant controls on China's semiconductor industry really from last year and what impact do you think Western sanctions on China like that have had if any so far are in China and Hong Kong yeah great great question and Echo Cindy thank you both for having me on this um and I think it's important that you started that question why we talk about sanctions sort of what what do we mean by sanctions right I think that term gets used in two different ways one is the broader context of what I would consider you know all the various tools of economic statecraft including export controls import controls traditional trade measures like tariffs um uh you know technology controls and then of course at least traditional sections economic Financial sanctions of the type that's imposed by ofak and the department of the treasury when we look at that broad set of tools I think By Design um so far the the focus and the impact that's been felt is in the export control space and in a big way and the export controls have increasingly become darling in Capitol Hill uh particularly I think in the U.S China context because of the nature of the conflict and and and and the sensitivities and the economic realities in the conflict and the U.S China conflict I characterize really largely today as a Technology based conflict also you know a military capability conflict but it's less of the tenor of a financial economic conflict in the sense of the U.S trying to ostracize China or major China China corporates and financial institutions from the global system like you have in Assyria or Iran or a Cuba or even now a Russian context and there's a lot of reasons why which I think we'll get into that um I think in the export control space we have seen some pretty significant impacts I mean we could argue all day about the extent of those and and folks can take issue with this but you know you mentioned the semiconductor space I do think that's probably the most significant action and we're just now you know starting to see The Fallout of that across the supply chain right and we're going to continue to see that and then so if if China were to take action in Taiwan of some kind what kinds of sanctions broadly do you think are likely to be imposed I guess principally by the US uh but also obviously the EU UK and others would be watching one of the things that I wonder about is you know would this be likely to be targeted sanctions are we talking about lists of people around XI jinpin as we've seen around President Putin being targeted is if there are such lists would Chinese military-industrial complex entities in the US simply be added to an sdn list or are we talking more export controls any any thinking being done on that time sure I mean you know my just to start my my view of the Taiwan situation is were that to happen and I I actually am the view that it's it's unlikely China will will initiate action against Taiwan in in the coming years I think there's so much downside for China right now and not a lot of upside um barring the U.S or potentially Taiwan forcing their hand you know if they do I think we're we're largely approaching a sort of Armageddon situation from a sanctions perspective I mean I think Cindy used the term we're an unprecedented uh land I think that's right um and I think it's you know anything is on the table uh in that case I you know I think yes we would definitely see a ratcheting up of export controls probably anything touching the military would would be verboten um I think you could see the limited sanctions that are in place you mentioned the c-mix being you know moved over to the sdn list right these companies that may have stronger connections to the Chinese military and the U.S eyes um but you could finally see some measure of targeting of the financial and I can economic sectors with your more traditional sanctions actions which we haven't seen today right there really aren't uh any U.S sanctions or significant U.S sanctions against China per se and I think that may come as a bit of a surprise to some people that are are listening to this today or on the recording but you know if you look at uh the designations that the traditional sanctions designations the U.S has put in place against China it's very minor uh there's you know a few hundred maybe 400 plus sdns in China the vast majority of those have nothing to do with China per se it's Iran North Korea nuclear weapons drug trafficking the same sort of sdns you'll find in Europe and in fact there are more sdns in Western Europe than there are in China so you know I think people put that in perspective it's a very interesting stat that I don't think people are are aware of when you're sort of looking at this holistic and can I just ask Chloe from a sort of financial institutions perspective to you share the same view on what might be likely to happen and also how nervous are banks if that's the right word about the Taiwan situation and what steps right now are being taken to mitigate potential risk thanks mine thanks to everybody else and for the invitation I think um banks are nervous of course Banks were nervous before Russia and a lot of preparation was done in advance of Russia's invasion of Ukraine and I think the key piece that was done then and is also a part of banks thinking now is building that relationship with The Regulators um not only um for existing measures but also Forward Thinking and to gain that trust that I think traditionally up until this invasion of by Russia of Ukraine and that trust and that um very close relationship which has been nurtured over the past 12 months didn't exist to the level that it does now and that's helping The Regulators think about what sanctions worked in the context of Russia what sanctions may have the right sort of impact in terms of achieving their foreign policy objectives for China I think what banks are doing now is looking at a Playbook and upskilling resourcing and to a degree that perhaps they had not previously thought would ever be imaginable because they've seen that in a crisis like Russia you really need to have bits on the ground and the right people that are in a position to be able to advise in terms of sanctions and we've looked across the entire sanctions landscape I think David set out some of the very key differences between export control measures and the traditional trade sanctions that we've seen and we've talked about list based sanctions as well I think one of the things we've seen over the past year is a blurring of lines and that is likely to continue as regulations take on new measures that perhaps would have been distinct in a separate legal instrument but we're now seeing them combined in what would otherwise be a traditional sanctions regulation I think Capital markets restrictions is one thing on the agenda as our list based uh sanctions yeah this the those members of the supervisory board that meet on a bi-annual basis as part of she's party um will likely be targeted including their family members and Close Associates but that's not going to have the sort of impact um that we have seen in Russia it's far more likely to be of sort of punitive and deterrent value as opposed to actually stopping any invasion of Taiwan but I think the one thing I wanted to mention was about what the trigger would be is it going to be a sanctions going to be triggered by an invasion a quarantine a blockade or indeed would it be the provision of Lethal Weapon by China to Russia there are a number of different things going on at the moment geopolitically and depending on what that trigger is and will impact the sort of sanctions we're likely to be great and I think we should definitely Square back to Cindy for comments on a lot of this I just wanted to ask one more thing though first to to David and and Chloe I mean uh and then really the same to Cindy is I mean what serious thinking do you think is now being done in so far as resources allow on the pros and cons of serious ratcheting up of trade sanctions and Export control on China I mean particularly China is a very different case from Russia in so many ways a much bigger economy more economic clout query more vulnerable to sanctions in the tech and financial sectors possibly than Russia has been in energy but also we the West is so hugely reliant on China for goods is it right 50 of the World's Trade currently passes through the Taiwan Straits is it realistic that there could be such a ratcheting up uh given the potential for self-harm in the west David I don't know reflection look I think that's that's the question right and that's I think the limiting factors you know they're the Russia the Chinese economy dwarfed the Russian economy and the importance of the global trade I mean you know I think U.S trade with Russia prior to the war was around 40 billion dollars or something like that U.S trade with China's 650 billion dollars right it's it's just astronomically larger and and I think you know Cindy mentioned sort of political the difference between political rhetoric and and the practicalities and I think that's something to keep in mind there's a lot of thinking going on the hill and the financial institutions and basically anybody operating in the region but if you look at the political rhetoric particularly rhetoric in Congress in the U.S Congress and I think there was 800 bills introduced last year that were anti-china in some way because it's it's one of the only bipartisan issues where everybody wins right now in the U.S so everybody wants to get a quick hit but if you look at some of the more the policy makers and and people that are on the ground on the economic side like Janet Yellen and U.S trade rep Catherine Tye both have said very recently that it is not the goal of the U.S to decouple from China and in fact that would be quote disastrous and impractical so I I mean I think there are real practical limits that um when you actually when when push comes to shove that the U.S and its allies of course are are very cognizant of uh and sort of um I think barring again I I like the way Chloe talked about uh this this sort of scale of potential actions involving Taiwan you know I think barring the pool of that of an actual military Invasion that brings the U.S into armed conflict with China um I think U.S Regulators are going to be nervous um to really put in place anything that looks like Russia at this point Michael over over to you there's Point well I just I just wanted to go back to the the the the issue we're all in our daily working lives concerned about risk and obviously the great risk here is that China is going to take some sort of action and I know Chloe you mentioned about the provision of arms to Russia but just focusing on Taiwan whether it's it's a blockade or whether it's military action certainly it does seem to be going through the motions we saw this um very recently when the uh uh Taiwanese Premiere went over to the United States uh and met at McCarthy and then there were you know a whole scale of military exercises taking place in in the streets so with your um profound knowledge of the situation so the what's your take on whether or not using China might take action in the not necessarily the short term but in the medium term I mean there is talk that Xi Jinping is going to has made this sort of the centerpiece of his his his his sort of legacy to bring Taiwan back into the Fall by and told his military to be ready by 2027 and a lot of U.S policy makers seem to be suggesting that that this is probable now rather than possible so um I've heard David's view what's what's your take yeah I think the medium term is harder to answer than the short because in the short term I would say unlikely that they will take any action but the medium term is the really the Crux of the question here you're right to say that Xi Jinping himself has made this part of his legacy um his his Rejuvenation of the Chinese Nation uh there's changes unseening a century and all of that clearly involves Taiwan so she does want Taiwan back the question is how high a prize is he willing to pay for it and I think that you know in the sanctions chat the reverse my you know you are stupid about the self-harm element about sanctioning China I think the the reciprocal to that would be people in Beijing thinking do we want to harm ourselves by invading Taiwan and figuring a set of actions and I think you know what the West has done in the wake of the Russian invasion has really shown more than expected unity in the eyes of of Putin and she when it comes to how far the West is willing to pay a price in order to defend democracy and I think that hasn't gone unnoticed uh but you know for the Chinese side they'll be thinking do we want to pay this price in order to get Taiwan back um and I mean that is the question I mean I I you know I don't know Michael if I do have profound knowledge because I think you know so many analysts before the Russian invasion said this was not not going to happen not going to happen and then it happened so it really kind of falls on all of us foreign policy analysts to think what were the shortfalls and what were the reasons why some people didn't see their Invasion happenings I wouldn't ever want to kind of predict that it's definitely not going to happen because you cannot predict in the mind of an authoritarian you know what they might wake up one day and think about I will just you know mention a few different points to consider though which is just that for one point um simping is not a dictator in the same way that Putin is now what I mean by that is the Chinese Communist party has much more institutional power in China than Putin uh them uh then she has personal power whereas in Russia Putin's power is pretty much absolute and it's all about you know how he uh has a person of a personal cult around him whereas in China you know the Chinese Communist party is 92 million members uh it has come before Xi Jinping it will last after seizing pain probably so one man's Madness is going to be a little bit more controlled I would think um than uh Putin who didn't even seem to have told many of his close um allies about the invasion happening so that's one thing to consider another thing to consider is the fact that the pla the people's Liberation Army doesn't seem to actually have the capability of taking Taiwan at the moment now of course it's going through Rapid modernization and increases in funding but we've got to bear in mind that Taiwan is not Ukraine in a sense that it is an island where we're talking about here is a joint operation amphibious Landing which is incredibly difficult you know you think back to Dunkirk for example it's not clear that the pla has that capability again Michael this is why your question is so tricky because in the medium term maybe they will and if they can take Taiwan in the in a matter of days then without you know triggering you know then the chances of triggering massive sanctions I think would be less because you know the more drawn out the conflict the more time it gives the worse to kind of get together think about these conflicts argue it out um uh and or so on but if if in the future the pla can take Taiwan uh in in a matter of days and I think that changes calculus but it's important to know that it can't at the moment um and then the other thing to say is just the economics of the whole thing you know this year at least China is coming out of its zero covered rut um it's not looking like China might be talking about three four percent growth for the rest of the decade maybe not more than that which is a massive drop from what happened um pre-covered and even you know before then so does the country really want to take that economic hit of invading another country I I just I I don't I'm just not 100 sure that that will be such a clear-cut thing and in the way that um public opinion and politicians talk about Taiwan almost always an inevitability that it will be invaded I'm just not sure that is true actually um so that's my uh lots of different things to consider answer Michael but no clear answer here it's sorry to jump in I I just wanted to dovetail on on something that you saying that's because I you know I didn't want to come across that I I think U.S sanctions are doing nothing um I think they are having a tremendous effect in the deterrence and the de-risking elements and putting the pressure as Cindy was saying on Beijing and Beijing companies and financial institutions I mean what we're seeing in the market again despite the political rhetoric on the other side is that China and its large institutions are very nervous about running a foul of U.S sanctions and being put on the list next and we're not seeing anybody going near Russia or really you know big corporations going near Iran or anything like that so I think I totally agree on the Taiwan front I think China's very nervous seeing how the the West reacted uh with Russia and in general is very nervous about having its large corporate institutions sanctioned so even though the U.S hasn't really done that yet it's there right it's looming and I think that's having a tremendous effect that's very interesting and so just then um thinking about if if this is a more longer term strategy for China do you think then that Cindy is part of that strategy China would be in any way looking at the way in which the West um imposed sanctions and ratcheted sanctions up against Russia particularly over the last 14 months and considering okay there's a there's a blueprint there um what can we in China do in order to sort of insulate ourselves as much as possible from those particular uh measures I I noticed that um um you know that they seem to be forming sort of stronger alliances president Lula from Brazil was in was in China last week and in fact he said um I thought it was quite interesting he said something like every night I ask myself why all the countries in the world base their trade on the US dollar so obviously there are conversations going on about trying to make um trade within these nations less reliant on the US dollar which is of course a significant lever uh when it comes to considering uh U.S and international sanctions so so do you think China is looking at that that's what happened in terms of the West's reaction to the Russian invasion of Ukraine how coordinated it was the measures that have been put in place with a view to trying to insulate itself yes absolutely um and and it's known that China has been looking at that so it was early as March and April last year it's been reported that actually the government has been organizing for banks private and state-owned as well as various government departments to do stress tests to talk about what would happen if similar sanctions happen to your organization what would you do about that um and you know that effort has we can expect has continued throughout the last year although the results of that is obviously very closely guarded um and then in terms of you know just how paranoid China is about all sorts of insecurities it has I mean uh China is now a net importer of food of energy and you can see that China is you know trying to secure itself even sanctions aside you know any any American uh effort to increase hostilities in a sort of trade War you know it's a good idea for China to be insulating itself a bit more and in fact it was the trade war with Trump that had china starting to talk about dual circulation which is this idea that you have an internal circulation in China so that the Chinese would feed itself you know Xi Jinping says that Chinese bowls should be fulfilled mainly with Chinese grains that's something that he cares about and but also like an external circulation where the world is still taking Chinese exports but the Chinese themselves are not dependent on International Imports now that's easier said than done uh but an effort is being made to do that um hence you know closer relations with Brazil because Brazil is actually China's largest agricultural agricultural producer and overtook the us a couple of years ago um hence closer relations with Russia too you know this question about why China hasn't condemned Russia more why hasn't China mediated all of this sort of stuff well China is actually getting a lot of cheap oil out of that and that this is kind of land-based energy Supply and stuff that doesn't have to go through um an indo-pacific that is largely controlled by American forces um so I think that's very much a front of mind as well um and then in other areas like semiconductors that we've talked about you know China's looking for self-sufficiency you know it is looking for to win a tech arms race so that it wouldn't be at the behest of the West United or not um so yeah so I think there are lots of things that is considering there's also one more point which is a military consideration the pla is actually a lot of it is based on Soviet it experience lots of equipment and literally Soviet equipment and that's why it does shows with the Russians even today because the pla actually is a bit of a on paper military and what I mean by that is actually it hasn't conducted a military operation since 1979. so a lot of things have changed in China since 1979 um and it will have looked at the Russian invasion to also learn militarily the lessons there why the Russians weren't able to take Ukraine in the way that it had hoped um so yes so lots of lessons to be learned I think for China from from all of what that's happened in the last 14 months perfect thank you Maya um so just bringing David and Chloe back in um I suppose it's fair to say broadly that the West has been pretty United in relation to sanctions on Russia obviously the EU countries have had significant differences of interest to resolve but I think it's a perhaps a surprising extent have done so particularly on energy issues so far do you see the same kind of unity between the US and the EU five eyes countries and so on if there were to be ramped up sanctions in relation to China or do you think that for example the EU countries are much less likely to follow the US lead on this one and also just how prepared do you think the thinking is and the policy thinking in the US and elsewhere uh on this already he's sure you want me to take that person um I mean I think in the China Conte I think you're right the cohesion in the west was surprising I think to most people um including those in the west um uh on how we got everybody on board particularly the Europeans who to be honest shouldered a lot more of the bird particularly on the energy side right um than did the U.S I think there's probably no question that becomes more challenging exponentially in the China context um given just how you know how diverse the economic relationships are with China how diverse the political thinking is I think Cindy's right there's a spectrum of thought right it you know the Russian invasion uh if you in Ukraine was in Europe's front front door right in their front lawn that made it a lot easier I think to get Europeans um uh um on board um I think that's going to be harder a little bit in the in the Taiwan context I I don't think the U.S will go It Alone um I don't think they could I think that would actually be much more disastrous for the U.S if they tried to go it alone and we've seen that they they have a hard time doing that uh now right so the semiconductor controls our prime example you know unless the us could have gotten Japan and the Netherlands on board would really ultimately you end up you know short-terming the U.S industry base right as others pick up the slack with China so I think that will continue to be a problem if sanctions if the U.S is looking to ratchet up sanctions in China now in the China context um if the U.S is willing to sanction China and shoulder what I would think would be actually quite a significant economic and financial burden um the U.S may be more prone to use what Michael rightly um uh said is the believer of the U.S dollar to sort of force Global financial institutions and its allies to play ball right and they can do that in a number of ways including enforcing secondary sanctions and the like so I think the U.S would push continue to push allies to join they may have to be a little more coercive than they'd like and and I think that will cause some friction I you know I think it would be a very difficult challenge Chloe I don't know if you want to come in on what's been said so far um I mean in particular before we Square back on a couple of more specifics are there key things you think businesses uh and Banks should be doing now to prepare for future China sanctions obviously financial institutions with some exposure might be having to do so but are there General lessons at the moment or is it a sort of wait and see what will happen in the future I don't think anybody can take that approach now after what we've seen with Russia I think Cindy said nobody expected The Invasion to happen but it did um and I think we we all have to be um very thoughtful in our thinking going forward with China because the likelihood of it happening whether it's high or low um could cause um quite um far-reaching economic pain on both sides that I think um we in financial sector certainly get the feeling that there is an advanced thinking across the G7 um plus countries in particular including Japan South Korea and Australia who wouldn't normally be sitting around the table discussing these sorts of issues in the in London or in Brussels or in Paris or indeed in DC at the same um tenacity that you would see that we've been seeing a bit recently so I think that advanced thinking is taking place and Global positions are forming and what I would say is that um in terms of what banks what businesses um can do and should be thinking about in preparation is a sort of warning and this is back to maybe 2014 and the same sort of warning signs that we got um when Russia illegally annexed Crimea those sorts of warning signs are coming out and so if you are going to do business with China continue to do business with China and indeed increase the business with China you need to be very cautious because those warning signs have come out I think the US are the ones that are speaking um most significantly about this but if the writing is on the wall ultimately whether it's a three four five six year delay but you're looking at some of these um vast projects where huge capital is being invested and then those warning signs are already out there and you know whether or not it's um you know um a course in the approach now or due diligence that needs to be increased over the over the coming years that's what's being spoken about around the table okay I I had a another question for David and then one perhaps for Cindy um David we've talked a bit about China's uh potential responses to sanctions one of the things we've seen of course with Russia is the idea of counter-sanctions so putting laws in place to try to make unlawful or somehow counter the impact of the West sanctions what impact do you think that China's anti-foring sanctions laws so far without getting too technical have had if any on multinationals doing business in China yeah that's a really really great question Maya um so you know they've had an impact everybody if you're doing business in China you're operating in China or Hong Kong you're talking about what does it mean what are the risks under the afsl for instance or the blocking statute or the unreliable empty list or any number of the recent tools that China's put in place largely if that's only in in response to Western sanctions particularly U.S sanctions right um so everybody's cognizant of the risks now no one really quite knows yet how far Beijing is going to push some of these tools and to date they've been used very sparingly um particularly the afsl it's been you know used primarily to Target politicians who are actually writing the sanctions or encouraging the U.S sanctions uh and a couple of Defense U.S defense companies that were you know selling arms to or engaged in arms trade with Taiwan it hasn't to date been used to force an actual conflict of laws situation for companies operating in in China or or Hong Kong even though it doesn't technically extend to Hong Kong um it has created conflict of risks particularly political and reputational risks that companies are being very careful now about language that they're using uh when they're complying or following their Global policies or things like that in China so it's changed a bit uh the tenor of again contracts reps and warranties compliance procedures things like that I still have not seen and we have not seen again that in my view that either us or Beijing is actually trying to force an actual conflict of laws such that for instance a bank would need to choose either complying with its foreign sanctions obligations or doing business in China and not running file at the afsl and I again I think that's by Design it's very pragmatic and I think both sides are getting uh political hits and political usage out of things like the FSL without really putting the screws in yet to commercial Enterprises but I I think it's fair to say that um you would be remiss to not consider the afsl and other Chinese tools if you're operating in the region um and at least pay heed to the fact that they're there and you need to be cognizant of them okay well one more from me to um Cindy we are weaving in some of the questions we've had in but then I think Michael I don't know if we're going to throw some of this out to the audience in a moment um but Cindy I just wondered what you thought about what one of the issues that occurs to to me and some of the audiences sort of other potential reasons why sanctions might be in place all ramped up in relation to China other than in relation to Taiwan so obviously certainly from a UK perspective but also elsewhere there have been very significant prohibitions in relation to Huawei and the use of technology in the UK there have been people sanctioned uh in relation to the uyghurs the human rights situation as you mentioned in China and what about if China takes step significant steps that are seen as supporting Russia in a pretty key way um we've also been asked if China's recent support for a UN resolution condemning Russian aggression against Ukraine indicates a bit of a change of dynamic in that respect or not but what do you make of in relation to sanctions in particular these other Dynamics feeding into the picture other than Taiwan yeah I I think I see a pretty complicated picture of dividing between different purposes of sanctions I guess um one is to control China's hard power so when it comes to uh things like semiconductor industry Well the West is essentially doing with export controls and the chips acting similar is to hobble China's leads there or any potential needs so that's one reason to go down sanctions another is dependence and National Security at home um National Security is a phrase that's been really inflated in recent years but I just mean National Security at home so Huawei comes into that dude do we really want to have Huawei equipment in our telecoms Network um and then finally an ethical Dimension as well as you mentioned a sing-dong issue um and that is something that you know sanctions on Chinese officials that led to the counter-sanctions on European officials um which included some you know London chambers of the chambers law Chambers and politicians as you know um and so those three dimensions see are the triggers for future sanctions but you know China doesn't take kindly to being sanctioned and as we saw in the xinjiang issue you know they they do Tit for Tat so you know whether or not any of these individual situations lead to more sanctions will actually depend on the case and then also what China does in response um also depend on what the sanctions in the first place are I think that that question about the UN um uh resolution is really interesting because it also does come in the week after zelenski and presidency have spoken on the phone for the first time you know since the invasion happened um at the highest level really um so I think that it's too early to say but I think we should be kept watching the space to see if China is mediating a little bit more you know this idea that China is sending the peace Envoy to Ukraine uh to help all the major players talk to each other that's about that's not happened yet but it's going to happen that they've announced um voting against Russia in this resolution you know are we seeing starting signs of China kind of taking more of a mediating role be very very interesting to see I think it's too early to conclude just yet but it certainly is a pattern that we should be keeping an eye on could I just follow up on that for a second Cindy putting my rather sort of skeptical and cynical hat on for a moment I mean it seems to me as though that's one of the really interesting developments over the last few months we've seen China play this sort of peacekeeping mediating role between Iran and Saudi Arabia that currently engaged in talks with the Taliban we've seen this long phone call with President zielinski do you think that China is trying to position itself as a as having a greater sphere of influence as a peacemaker on some of the great conflicts on the planet and in specifically in relation to Ukraine when when China initially exhibited support for President Putin that went down extremely badly in the west and do you think that this initiative now is a way to try to dilute that and try to get the EU more on side so that if there is something that happens further down the line of listening to Taiwan there's more of a chance of creating a split in the west between the United States UK and the EU um so on your second question I think it could be why um definitely could be why and some people have pointed out that this comes in the aftermath of macron's visit so has Emmanuel macron achieved something here I think it's unlikely that Matt content himself would have been the only reason that China that see picks up the phone to zelenski I think um China has always been trying to perform this what some people call it a Beijing straddle when it comes to the war in Ukraine trying to on the one hand saying it's not supporting Russia uh it it believes in sovereignty um whilst on the other hand condemning NATO expansionism American imperialism uh you know talking about how that's sustaining the war rather than as of Ukrainian self-determination wasn't a good enough reason to keep fighting the war um and it wants to get both sides because of the economic situation at play here you know something that we've already hinted at here is just the the the incredible amount of trade between China and the EU and China and the US especially compared to China and Russia so it wants to keep uh straddling that position I think this phone call this resolution it could be a way of diluting that um especially after the March visit to Moscow but at the same time I'm skeptical to say that China cares that much about the West opinion on this one you know I was speaking to some um officials from the Chinese Embassy recently and they were saying you know when I put this to them they were saying you know but what do you mean the world is against China or Russia you know actually it's the west side that cares about this what they meant by that was that the developing world was actually a lot of the developing world I was actually Pro Chinese stance on Russia or even pro-russia itself so I think that's something that here in the anglophone world in the west that we don't see as much that China actually feels that it does have the weight of um the world Community behind it and a lot of the things that it does um you know going back to that Bri question that we were talking about earlier um and then your first question about you know taking this mediation role things really really interesting what's happening in Iran and Saudi Arabia is the first time ever that China has taken its world power status and done something in terms of a political responsibility with it you know the US is used to being a policeman of the world which comes with its hard power but it's for the longest time it seemed like China wasn't interested in that part of being a world superpower it was only interested in the hard power or the soft power in the aid of its own interests it wasn't interested in meddling in non-china related conflicts so I think that's Iran Saudi Arabia there was definitely a watershed whether or not it's the beginning of a pattern I think we need to see more you know I'm also very cynical when it comes to Chinese mediation I think there's always you know I think I think the Beijing authorities are very good at fulfilling Chinese interests and not meddling too much in ways that probably some Americans are envious of um so I think I would be I would be skeptical to say that this is definitely going to be the new normal but it is very very interesting and if we have more case studies then that would be definitely a theme that's developing but but not yet okay thank you very much can I just pick up on one of the questions that's come in and follow on from some of the comments that's been made I just want to focus a little bit on the strength of the US dollar and how how important that is when it comes to International sanctions and for both Chloe and David's point of view and working with corporates or working with banks um in terms of international trade the dollar um this time last year was just over 86 percent of international students using the dollar now it's down to 84 I know that's not a radical decline but it's a decline nonetheless uh the Chinese currency has has more than doubled in terms of uh world trade and that's not significant because it's gone from two percent to four and a half percent but it but there is a direct there does appear to be a direction of travel and also um you know a lot of these countries are now looking at their their digital cyber digital currencies and using alternative methods for trading with each other and using their own currencies whether it's you know Russia and India or Russia and China do you see this as a potentially sort of a person that's that's going to be a sort of essentially going to see a long-term decline in the influence of the dollar and that's going to impact on the US's ability to actually change the behaviors it wants to change using sanctions yep happy to jump in on on that first Michael I mean look there's constant um debate that the more the U.S uses the strength of its dollar the more it's pushing folks to to de-dollarize right and come up with with other options I think we've got a pretty long tail on that happening for for a few reasons um you know it could at some point I I think I'll probably be able to ride out the rest of my career at least to fairly peacefully on that um uh because you know there's there's not really the one is not in a position for a while to replace the dollar certainly not as long as China has Capital controls in place for for one issue right I mean that's just not going to happen um and there's not really another strong Contender enough to pick up that that significance of the global trade figures as one uh as one figure so even if it drops to 60 70 still the majority of trade is in is in New US dollar right um and it's really still the threat even if you're not trading in US dollar directly the threat that if you're a global financial institution that the U.S will take away your access to Dollars you're going to play ball right because even if only half your business is of your clients businesses and nominated USB that's pretty significant so I I think the dollar and and you know crypto's interesting certainly um I'm not sure how much crypto helps ultimately I mean you know it's very difficult to do big transactions in in crypto right big commercial transactions the bulk of your large international trading is still not done that way um the US is getting more clever at getting to crypto companies there's been four or five enforcement actions recently against crypto exchanges for instance so you know I'm not sure that's quite the safe haven it used to be um so anyway you know I I think there's certainly a strong push Russian's been trying China's been trying to come up with creative way ways to get around dollar and dollar clearing I think they'll continue to do so um South Africa may join in Iran may join in Brazil may join in so um there's there's certainly that direction uh and momentum I'm not sure when it's going to come to fruition um I I don't think in the medium term sure yeah just just to add I think I agree with all of David Point David's points they're well made I think um the the long-term Outlook um is as David has described and there is a shift but it's going to be such a slow shift but I'm not sure it would happen in our lifetime and I think one key indicator that I'm sort of aware of is the um idea that we could have sanctions similar to those that we saw against the Russian Banks and the Russian Central Bank um against China would that actually um cause a global financial crisis and a crash um across the world and I think you know the the idea that you could de-swift um Chinese Banks um because of um the way that the the dollar um and the Chinese trade um is um spread globally is just Unthinkable because of the strength of the dollar and so we're not going to see those sorts of sanctions um and and it may be that there are alternatives like we've talked about crypto but we've seen in the context of Russia that they're just not um they don't have the capabilities they're not widespread enough and there isn't enough trust in those Alternatives and for them to be able to overtake the dollar so I really don't think it's going to have that sort of a change that perhaps it's been talked about um up until now okay um that's incredibly helpful we're running out of time so maybe just time for one last question so I've I've left a good one to the end um so um the one thing we haven't touched on when it comes to considering risk in the short term there is something that is going to happen in 2024 which make it may make a massive difference and all of our considerations and of course that's according to the opinion polls the uh uh the the presidential election between two elderly gentlemen in the United States now I imagine if Joe Biden were to win it's it's policy as it is um continuing if he loses and he loses to Donald Trump we saw what Trump did with the jcpra insofar as Iran is concerned um do you think your risk analysis changes at all and if so in what way foreign thanks a lot um well I can tell you my risk analysis changes uh if um the Trump Administration gets in just because I will expect a little bit more um chaos in the regulation if you will um I you know it's hard to tell I you know I I think by and large we see very similar policies under either Administration I mean I you know I think we saw some some straightening of some of the programs if you will when Biden came in particularly the cmic program um a little more clarity around what that meant um but by and large right most of the Trump Administration policies were carried forward um so I you know I I don't I'm not sure even there'd be much for Trump to unwind even if he wanted to on the China policy I suspect he'd find you know find a way to make it his own um which any incoming president would do um but I yeah I I you know I I guess the short answer is I gave up predicting what a trump Administration would do Under the last administries and so I don't have an answer on that one I punched yeah yeah I think Trump has been described as an unguided missile and Biden is capable of implementing strategic diplomacy and there was as you pointed out that um review the the National Security review which looked at all of the sanctions measures and tidied up including Scenic and others and I think that that the sanctions measures have become a little bit more refined you know what you're getting and what to look forward to and the unpredictable policies of trump could interfere with that but does risk change um it's always going to be a challenge and Cindy last word to you in in Beijing who do you think they would rather see in the White House come the beginning I mean it's so difficult isn't it because it was Trump who started I would say you know this American turn against China um you know there were structural reasons there too but I think unless you had a president like Trump you wouldn't necessarily have the speed with which hostilities increased um and yet Biden has kept those up so he's kind of voting uh he's got confidence in those in that kind of approach himself by keeping a lot of those um strategic approaches um and then on the other hand Trump you know he is just so um haphazard isn't he I mean he he will go to International Summits and tell student ping I think what you're doing in xinjiang is totally correct and good for you you strong man um but at the same time we know that there's a strain in the Trump um caucus at least in the last Administration like Steve Bannon who always believed that China was a bigger threat than Russia and so their isolationism on Russia on the Middle East doesn't actually necessarily mean isolationism on Taiwan China and actually a lot of it is seen yes you know withdrawing from Afghanistan or withdrawing from uh from from Ukraine as Rhonda Sanchez also talked about it's actually a way of getting closer to tackling the Chinese problem so I think you know it's it really it depends really I think I think I'm I'm I don't I don't see that Trump would put any military resources into defending Taiwan if there were Innovation and I think Beijing might think about that at the same time Trump would be happy to be much much harsher on China uh pre and post that um just for the sake of American interests so yes a mixed bag well it's a question of watching this space well thank you can I thank you all very much indeed uh David Cindy Chloe my my co-chair it's been a hugely entertaining interesting fascinating stimulating conversation and we look forward to doing it again at some point very soon thank you very very much thank you thank you

Channel: Peters and Peters

Views: 16,617

Keywords: Peters & peters Solictors, London EC4A 1BW

Id: LW-3d6mPGeM

Length: 61min 45sec (3705 seconds)

Published: Tue May 02 2023