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China is now having to digest the news that, as a result of western sanctions, Russia has lost access to most of its foreign reserves. As the economist Barry Eichengreen points out, one of the main reasons that countries hold foreign reserves is “as a war chest to be tapped in a geopolitical conflict”. But China, which has the world’s largest foreign reserves, has just discovered that it could lose access to its war chest overnight.

China is not nearly self-sufficient in either energy or food. It has worried for decades about the “Malacca Dilemma” — the threat that the US navy could blockade China by cutting off key shipping routes. China’s huge investments in its navy are partly aimed at averting that possibility. Now, however, Beijing has to consider the possibility that a freezing of the country’s foreign reserves, allied to other financial sanctions, could be just as threatening as a naval blockade.

Frustratingly for China, there is no easy way out of this. The obvious solution would be for it to trade increasingly in its own currency, the renminbi. But Beijing has shied away from making the RMB fully convertible, fearing that this would lead to destabilising capital flight.
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The fact that the EU, UK, Swiss, South Koreans, Japanese and Singaporeans have joined in the financial sanctions on Russia has created a united front of developed economies that should concern Beijing. China has repeatedly measured itself directly against the US, ticking off milestones as it goes: largest trading power, largest economy measured by purchasing power, largest navy. Yet if China now has to measure itself against not just the US, but also the EU, UK, Japan, Canada and Australia, its relative position looks much less powerful.

It is clear that trying to isolate China economically would be much harder than imposing sanctions on Russia — which is itself hardly painless. China is deeply integrated into western supply chains. Many western multinationals have put China at the centre of their business strategies.

For that reason, even some of America’s China hawks have accepted that economic interdependence between the US and China is a given. But a global crisis causes people to re-examine basic assumptions. The idea of an economic severance of China from the west, once unthinkable, is beginning to look more plausible. It might even appeal to the growing constituency of economic nationalists in the west who now regard globalisation as a disastrous error.

China’s military calculations also suddenly look more complicated. If the experienced Russian army cannot easily prevail in a land invasion of Ukraine, how could China carry off the much more complex seaborne invasion of Taiwan? The Ukrainian experience suggests that the Taiwanese would fight back and that China would have to accept heavy casualties — as the west poured in military aid to Taiwan. And while President Joe Biden has repeatedly ruled out fighting for Ukraine, he has suggested that the US would defend Taiwan.