The Russian treatment

Could the West punish China the way it has punished Russia?

New economic weapons are double-edged swords

“WOULD THE US really dare to freeze or confiscate China’s reserve assets?” asked Wang Yongli, a former director of Bank of China, in an article in March. Good question. After Russia invaded Ukraine, America and its allies imposed crippling sanctions on Russia’s central bank, removing from its reach about half of its foreign-exchange reserves. They also cut off some of Russia’s biggest banks from the Western financial system and banned many high-tech exports to the country. If China were to do something geopolitically rash, such as invading Taiwan, could the West do to China what it has done to Russia?

America and its allies certainly have the means. “The locus of financial power still sits firmly in the West,” says Eswar Prasad of Cornell University. China probably keeps about two-thirds of its $3.2trn of foreign-exchange reserves in Western government bonds and the like. Because of the size of its holdings, it has few viable alternative stores of wealth. If America and Europe instruct their financial institutions not to deal with Chinese banks, they would lose access to the dollar, euro and pound.

But would the West really dare? “Freezing” China’s reserves might not be too destabilising. Even if China wanted to dump its holdings to spite the West, the sanctions would…