MNI INTERVIEW: China To Spur Global Yuan If Dollar Access Cut

--Restricting Chinese Firms' USD Access Would Encourage Yuan

Internationalisation

--State Council Advisor Wang Huiyao Tells MNI Beijing Could Promote Yuan

Settlement

     BEIJING(MNI) - Any U.S. move to limit Chinese access to dollar transactions

in response to China's extension of its security laws to Hong Kong would only

prompt Beijing to accelerate its international drive to encourage use of the

yuan, an advisor to China's top administrative body told MNI.

     "China may be affected in the short term. But China would step up its

international promotion of the yuan through its Belt and Road initiative, and

even promote an international yuan settlement system. Europe wouldn't stand in

line with the U.S. on this either," Wang Huiyao, president of the Center for

China and Globalization and advisor to the State Council, said in an interview

on Tuesday.

     Such a move would also undermine the U.S. dollar's status as the leading

global reserve currency, Wang said, speaking before a fresh escalation of

tensions as the U.S. ordered the closure of China's consulate in Houston.

President Donald Trump's retaliation over Hong Kong was prompted by

electioneering, he said.

     "The current U.S. administration, including his staff, advisors and China

hawks, actually has one over-arching purpose, which is to get re-elected," Wang

said, "Attacking China is expected, and it will become very crazy in the next

four to five months. But it will ease after the election."

     The faster recovery by Asian economies than their western counterparts from

Covid-19 also blunts the impact of U.S. measures, according to Wang.

     --U.S. COMPANIES

     "I don't think the measures will inflict much pain on Hong Kong and China,

especially as the city is not relying on the U.S. anymore," he said, adding "The

U.S. has 1,300 companies and nearly 90,000 U.S. citizens in Hong Kong, and its

trade surplus [with the territory] is the only one it has in Asia, so the moves

are actually hurting itself more."

     Responses by other western countries to China's Hong Kong moves have been

relatively restrained, Wang said, pointing to the UK's move to suspend but not

scrap its extradition treaty with its former colony.

     "I think the broad criticism will gradually ease once the countries see

that Hong Kong maintains its prosperity and its stability," Wang said.

     Mainland tourists will return to the city, and Chinese companies delisted

from U.S. stock markets will list in Hong Kong, said Wang, who was dismissive of

a survey by the American Chamber of Commerce showing that 37% of business people

are planning to leave the city due to the law.

     "Capital chases profits, so I don't think they will leave the place in the

end," Wang.

     Global coordinated sanctions following the suppression of student protests

in Tiananmen square in 1989, were much more serious than the response to China's

policy in Hong Kong, Wang said, adding that the size and potential of China's

economy eventually lured multinational businesses back and foreign governments

resumed cooperation with Beijing.

     Trump said last week the U.S. would revoke Hong Kong's special trade

status, barring exports of sensitive technology the region, furthering

constraining the availability of those technologies to China. The U.S. president

also signed the Hong Kong Autonomy Law, which would permit sanctions against

Chinese officials and restrict financial institutions' access to dollar

transactions.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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