As Sino-US relations continue to dive, the prospect of further US economic sanctions against China-related entities is all but certain, while fear of war between the two superpowers is growing. However, the Chinese government has deliberately been playing it cool to avoid falling into the Thucydides’ trap of war with the preeminent world power.
“We have to prepare for all eventualities, even grey rhino threats and black swan events. For example, what if an armed clash between the US and China takes place? Both sides do not want it, but they are preparing for it just in case,” said former Singapore Prime Minister Goh Chok Tong on his Facebook on August 8.
Hostile rhetoric against China by top US officials like Secretary of State Michael Pompeo have accelerated in the past few months. On August 7, the US Treasury Department sanctioned 11 senior Hong Kong and Chinese officials for undermining Hong Kong’s autonomy, including Hong Kong chief executive Carrie Lam Cheng Yuet-ngor and the director of the Hong Kong Liaison Office Luo Huining. In return, the Chinese government sanctioned 11 Americans including Senators Marco Rubio and Ted Cruz on August 10.
Other recent US actions against China include sending aircraft carrier groups to the South China Sea, ordering the closure of the Chinese consulate in Houston on July 22 and the visit of US Health and Human Services Secretary Alex Azar to Taiwan on August 9 which drew protests from Beijing.
In contrast to the fears of the former Singapore Minister, Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University of China, does not believe war will break out between the two superpowers.
“But I have a cautious and optimistic judgment – in the foreseeable future, no hot war will break out between China and the US,” wrote Wang in a column in the Global Times, a normally hawkish Chinese newspaper.
To boost his approval rating before the US election in November, Trump has been desperately hyping up China-related topics like Xinjiang and Hong Kong, Wang explained. Now, the Chinese military has the strength to deter US military action in Western Pacific, Wang argued. “I believe Trump is a rational leader and tend to think he is a great talker to manipulate public attention. But he is not a doer when it comes to a real war.”
“A hot war means cutting off ties. The American people cannot spend even a day without Chinese goods,” Wang added.
Trump baits China
The purpose of the US government’s escalation of rhetoric and measures against China in the past few months is to provoke Beijing, said a risk consultant who declined to be named. “The US government wants China to make a mistake. China has held back and has been moderate in its response.”
At a press conference of the Chinese Foreign Ministry in Beijing on April 10, Chinese Foreign Ministry spokesman Zhao Lijian gave a similarly dovish message, “We are committed to achieving non-conflict, non-confrontation, mutual respect and win-win cooperation with the United States.”
The Chinese government knows the administration of US President Donald Trump is setting a bait for it, because Beijing is “not biting”, the risk consultant disclosed, based on feedback from Chinese officials.
“If China lashes out against US provocation, it may give Trump an excuse to use naval action to take out China’s naval capability. China’s naval capability is the real target now,” the risk consultant explained.
Right now, China has two operational aircraft carriers. A third aircraft carrier could be launched by 2021, reported the Global Times on December 18, 2019.
The window of opportunity for the US government to prevent the Chinese navy from getting too advanced lies within the next 18 months, the risk consultant estimated.
Preparing for a triumphant or ascending China seems most prudent for the US, said a report by the Rand Corporation released in July, titled “China’s grand strategy”.
In both scenarios, the US military should anticipate increased risk to its forces in Japan, South Korea, and the Philippines, and a loss of the ability to operate routinely in the air and sea space above and in the Western Pacific, said the US think tank which advises clients like the US government. “For the US Army, this means efforts to optimize specific, key units and capabilities for available airlift and sealift to get soldiers to the fight quickly or to a hot spot swiftly before the fight breaks out.”
“Because China probably will be able to contest all domains of conflict across the broad swath of the region by the mid-2030s, the US Army … will need to be able to respond immediately to crises or contingencies at various points of contention,” Rand urged.
Even if a military conflict does not break out between the US and China, an economic war is happening already. On August 6, Trump issued an executive order banning two Chinese social media apps, Tiktok and WeChat, from operating in the US in 45 days if they are not sold by their Chinese parent companies, ByteDance and Tencent respectively, to US firms.
“This is not going to stop at Tiktok and WeChat. This is going to on to Alibaba and other major Chinese tech companies to inhibit their use overseas,” the risk consultant warned.
Trump and Pompeo have been talking about “the weaponization of finance” against Chinese entities as punishment for China’s alleged human rights abuses including the imposition of the national security law in Hong Kong, said Joseph Yam Chi-kwong, a former chief executive of the Hong Kong Monetary Authority. “This is something that is of concern to me.”
The US has a “very powerful arsenal” of financial weapons, including possible sanctions against Chinese individuals and their foreign bank accounts, Yam said at a webinar on July 29 organised by the Our Hong Kong Foundation, a Hong Kong nongovernmental organisation founded by former Hong Kong chief executive Tung Chee-hwa. “I fear that at least in the next few months, (the US government) may name individuals and foreign financial institutions.”
Foreign financial institutions found dealing with sanctioned Chinese individuals can be named by the US government, Yam warned.
Under the Hong Kong Autonomy Act which Trump signed on July 14 as punishment for the national security law which took effect in Hong Kong on June 30, the US government can sanction foreign financial institutions found to have significant dealings with sanctioned Chinese individuals. Possible sanctions include restrictions on loans from US financial institutions and banking transactions as well as sanctions on executives of the offending financial institution.
“These are very draconian measures,” Yam remarked.
Hong Kong has offices of 78 of the world’s 100 biggest banks. If the US government sanctions banks which do business with blacklisted Chinese entities, the banks may be forced to pick sides between China and the US, said the risk consultant.
“Banks are scared these days,” said an ex-banker based in Hong Kong.
Toh Han Shih is a Singaporean writer in Hong Kong.