China’s latest threat to bar companies with ties to US officials who visit Taiwan points to a weakness for Beijing in its sanctions battle with Washington: It can control its own borders, but the greenback rules the world.

In recent months, the Trump administration has levied sanctions against more than a dozen Chinese officials and restricted access to scores of the country’s companies. The penalties have caused credit card headaches for Hong Kong Chief Executive Carrie Lam and, according to the South China Morning Post newspaper, forced the former British colony’s police credit union to relocate an estimated $1.4 billion of assets to Chinese banks.

Meanwhile, the firm countermeasures that Beijing has threatened against US officials including Senators Marco Rubio of Florida and Ted Cruz of Texas have yet to be felt across the Pacific. None of the dozen American individuals sanctioned since July have received notice of what the penalties would entail, other than the assumption that they would’nt be welcomed in China.

“I wear it as a badge of honour, but Beijing’s actions don’t have any impact on me,” said Rubio, a frequent China critic who has been named in sanctions announcements twice this summer.

While China has calibrated its response to minimise the risk of further escalation by President Donald Trump, its also limited by the US dollars dominance in international finance. The greenback accounted for almost 40 per cent of all SWIFT transactions in July, compared with less than 2 per cent for the renminbi, as the Communist Party resists calls to ease currency controls. That makes it more difficult for multinational banks — including Chinas state-run lenders — to avoid compliance with US sanctions.

The US’ dollar advantage could become even more important if the Trump administration sanctions financial institutions in Hong Kong as authorised by congressional legislation in July, or takes direct action against Chinese banks. Beijing’s strongest weapon remains blocking access to its vast market: Hu Xijin, editor-in-chief of the party’s Global Times newspaper, said on Wednesday such a move was being considered for companies with ties to US officials who visit Taiwan.

“China doesn’t have too many tools to implement the sanctions because the US payment system is so prolific and pervasive,” said Edwin Lai, a Hong Kong University of Science and Technology economics professor, who specialises in renminbi internationalisation. China is disadvantaged in the sanctions game because its payment system is underdeveloped and yuan internationalisation is decades away.

The US’ financial sanctions also carry fewer risks of backfiring than Chinas usual tactic of cutting off market access. The Chinese economy is still reliant on foreign investment and Beijing is wary of moves that could scare off multinationals and scuttle its phase-one trade deal with Trump. Chinese diplomats have in recent weeks expressed a desire to de-escalate tensions ahead of the US presidential election on November 3.

Both sides have so far steered clear of sanctioning top officials, with Trump ruling out measures against potential targets including Vice-Premier Han Zheng, people familiar with the matter said in July. While the US has penalised Lam and Politburo member Chen Quanguo over alleged human rights violations, China has targeted lower-level officials such as Ambassador-at-Large for International Religious Freedom Sam Brownback and six members of Congress.

Cruz spokeswoman Maria Jeffrey said the exchange showed that the US has a much stronger sanctions framework, including having a procedure for notifying people that they’ve been targeted. “I guess he cant go there anymore,” Jeffrey said. “When we ban someone from visas, there’s a human whose job it is to send them a letter saying, Don’t bother coming.”

The latest US decision to sanction 24 Chinese companies over their alleged roles building military facilities in the disputed South China Sea signals further expansion of the strategy. Major lenders with operations in the US, including the Bank of China Ltd., China Construction Bank Corp, and China Merchants Bank Co., have taken tentative steps to comply with US sanctions.

Yuan overhaul

Further escalation could involve seizures of US-based assets, Yu Yongding, a senior fellow at the Chinese Academy of Social Sciences, told a forum organised by the Beijing News newspaper on August. 12. “This possibility can’t be ruled out,” Yu said, citing penalties imposed on the Bank of Kunlun in 2012 over Iran ties.

“The US also has the nuclear option of cutting China off from the US dollar system,” said Ding Shuang, chief economist for greater China and north Asia at Standard Chartered Plc, which would leave China unable conduct any transactions in dollars. “This option was unlikely to materialise given the financial damage it would cause to US companies based in China and Hong Kong,” Shuang said.

“The danger of this occurring is one of the key reasons that China may accelerate the renminbi internationalisation,” Shuang said. US-China tensions targeting the financial industry has been the catalyst in re-accelerating the momentum for renminbi internalisation.

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