According to Bloomberg, Wall Street Banks are reassessing the risks of doing business in China in the event of a Taiwan invasion by Chinese forces.
The risk of assessment of China’s invasion follows the withdrawal of Western financial institutions from Russia after suffering billion-dollar losses in the country due to its invasion of Ukraine.
Bloomberg cited its sources, reporting that Wall Street banks, such as JPMorgan Chase & Co or UBS Group AG, have reviewed contingency plans to manage exposures to the China market in the past couple of months.
Mark Williams, a professor at Boston University, told Bloomberg, “Political risk around potential U.S. sanctions and the likelihood that China would respond by restricting capital flow has kept risk managers busy.”
He added, “A sanctions war would significantly increase the cost of doing business and push U.S. banks to rethink their China strategy.”
Last week, during the congressional hearing on Wednesday, CEOs of U.S. banks said they would follow what the government demands of them in the event of China’s invasion of Taiwan.
However, planning for such scenarios is not easy for executives as the topic is extremely sensitive and taboo for Chinese clients. Banks’ managers are reluctant to discuss the issue because they fear backlash from China.
Meanwhile, Bloomberg cited London-based Willis Towers Watson, saying that global insurers have raised costs over 60% for political risk coverage linked to China since Russia’s invasion of Ukraine. They also back away from writing new policies to cover companies investing in China and Taiwan.
As Wall Street firms have invested billions of dollars in China, a withdrawal from the market, like in the case of Russia, would blow away all the money from those bankers.
At the end of 2021, the largest Wall Street financial institutions had a combined exposure to the Chinese market of around $57 billion.
The US-China tension has been escalating in recent years, and there is no sign of easing as the two powers compete for world dominance.
During an interview on CBS’s 60 Minutes last week, President Biden repeated that U.S. forces would protect Taiwan if the Chinese communist regime launched a military assault on the island.