Look Out: Some Chinese Thinkers Are Girding for a “Financial War”

As the details of a trade deal between the U.S. and China have emerged over the past week, the international community and the business world have reacted with guarded relief. The content is still vague, and there are plenty of quibbles over the particulars, but it appears to have headed off a fresh round of damaging tariffs—and, at minimum, the agreement means that two potentially very serious economic adversaries are still talking.To get more Shanghai business news, you can visit shine news official website.

That relief may be premature. The largest problems facing U.S.-China relations, from emerging technology to the crisis in Hong Kong, remain unresolved. And a careful reading of the conversation inside China suggests that the next front line of the U.S.-China conflict may already be taking shape, with an ominous name: Financial war.

Many members of the Chinese elite, even longtime advocates of market reform and economic opening, see a dark future for U.S.-China relations—and they are increasingly focused on America’s global financial hegemony as a long-term risk for their country. They’re indicating, subtly but unmistakably, that they see global finance as a rising theater of conflict, and are considering new ways for China to defend itself and even to retaliate.
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An example is the economist Lou Jiwei, who has long been seen as a liberalizing force in China, an advocate of market reform and international openness. He served as finance minister, ran the country’s massive sovereign wealth fund, and has palled around with western economists since the 1980s. But recently he made a prediction that contained a startling phrase: At a forum in Beijing, according to reporting in the South China Morning Post, he said: “The next step in the frictions between China and the United States is a financial war (jinrong zhan). The U.S. has been hijacked by nationalism and populism, so will do everything in its power to use bullying measures [and] long-arm jurisdiction.”

In this financial war, he continued, the U.S. will exploit its dominance of the international financial system to hurt China—and China will fight back.

Lou’s comments are just one sign of a significant shift underway in China about the future trajectory of the U.S.-China relationship. Officially, Chinese financial policy remains focused on diffusing domestic risks and increasing inbound investment, and lies in the control of bodies such as the People’s Bank of China and the Ministry of Finance. But shifts in how China’s rulers are thinking about policy are often signaled in the language used by former top officials and government-linked experts.

Chinese concerns about American financial power have risen throughout 2019 and intensified dramatically in recent months. The high-profile arrest of Huawei executive Meng Wanzhou reportedly relied on cooperation from U.S. banking institutions to demonstrate that Huawei had violated sanctions on Iran—triggering a fierce response from Beijing, which decried these actions as “motivated by strong political intentions and manipulation.” After the U.S. officially labelled China a currency manipulator in August 2019, both Zhou Xiaochuan, the longtime central bank governor, and Chen Yuan, a former central bank deputy governor and Communist Party princeling, called for China to find new ways to use the yuan instead of the dollar in many more international transactions.
The trade war is evolving into a financial war and a currency war,” Chen Yuan declared.
Zhou Yu, director of international finance research at the government-run Shanghai Academy of Social Sciences, recently also predicted an escalating “financial war,” ringing the alarm that China should see the “urgency of beefing up its financial independence and sovereignty.”

And Huang Qifan, a prominent retired economic official and former mayor of the megacity Chongqing, in September decried the U.S. acting as “the world’s boss for decades,” using “long-armed jurisdiction” in economic and legal domains to commit acts of “unreasonable bullying.” (The language closely echoed that of Lou in his remarks in Beijing.) Earlier this month Huang called again for China to fortify its defenses.

There are plenty of reasons to think a financial war won’t get hot anytime soon; the barriers to upheaval are daunting because of the dominance of the dollar and China’s reliance on foreign capital, among other reasons. But U.S. leaders need to pay attention even so. For many years, such harsh and open denunciations of the global financial system were primarily the purview of nationalistic writers such as People’s Liberation Army officer Qiao Liang, who has condemned the American “financial empire” while writing anti-American screeds. The fact that even these more mainstream voices are joining the chorus is a significant and underexamined shift, and one likely to matter far beyond the current trade deal.