Does China prepares for the cross-strait war
It is buying arms, selling US bonds, stockpiling gold
Amid rising military tensions over Taiwan, analysts say China has entered a high-intensity wartime regime. It is because China is reducing exports of military goods to pile up weapons and increasing food self-sufficiency. It it assessed that reducing its holdings of U.S. bonds in preparation for a U.S. dollar asset freeze and stockpiling gold, which is easy to cash out, is a clear sign of war. “It is more likely than ever that China will invade Taiwan in the next two to three years,” said Lee Chul, a China expert.
◆China is reducing arms exports
According to an analysis report by the Stockholm International Peace Research Institute, China’s arms exports from 2018 to 2022 fell by 23% compared to the previous five years (2013 to 2017). During this period, China’s share of the global arms export market dropped by more than one percentage point, from 6.3% to 5.2%. On the other hand, China has significantly increased its defense budget. This year, China’s defense spending reached 1.55 trillion yuan, increased by 7.2% compared to last year. This is the largest increase in defense spending in the last four years.
Military experts point to China’s declining arms exports as a clear sign of war. It’s a sign that the country is focusing more on domestic demand for arms than exports as geopolitical tensions rise. Russia, the world’s second-largest arms exporter, cut its arms exports by 31% over the same period, and built up its own arsenal before invading Ukraine. One military expert said “Chinese President Xi Jinping has ordered military preparations for a cross-strait war targeted for 2026-2027,” and “there is still a high probability that war will not occur, but given China’s readiness, probability of war is becoming increasing.”
◆Remarkable pace of gold stockpiling
The common view among Chinese experts is that in addition to military preparations, the transformation of the entire society into a war-ready system is proceeding at a rapid pace. In particular, many of them pointed out that China is reducing its holdings of US treasury bonds and using this money to buy gold at the fastest pace in history.
According to US Treasury statistics, China’s holdings of US treasury bonds hit $97.6 billion in April of last year, which fell below $1 trillion the first time in 12 years since 2010. Since then, it has continued to reduce its holdings, and in March, China’s holdings of US treasury bonds fell to $869.3 billion. That’s a 14.2% decline in a year compared to March of last year ($1.13 trillion). China’s share of US treasury bonds held by non-US countries rose from 3.3% in 2000 to 22.6% in 2013 and fell to 11.4% in March of this year. Japan tops the list at 14.3%.
China’s move to reduce its holdings of US treasury bonds is primarily aimed at reducing its dependence on the dollar. In addition, it is assessed that China concerning about that the US will initiate economic sanctions if war breaks out. After Russia invading Ukraine, the US rallied the countries of the Free Zone to impose tough sanctions, including freezing dollar assets. This tightened the purse strings so that Russia could not buy weapons at will. China would have no way to monetize its government bonds if the same thing happened.
Instead, China continues to increase its gold reserves. The gold reserves of People’s Bank of China grew from 19.29 million ounces in 2008, before the global financial crisis, to 66.5 million ounces as of March of this year. That’s a 244% increase in 15 years, which is the highest level of gold reserves since publishing statistics in 1978. In particular, in December 2018, the country purchased 3.4 million ounces intensively in 10 months as the US-China trade conflict escalated, and added gold reserves of 3.86 million ounces in 5 months from last November to March. This is why it is described as a historically fast pace of gold stockpiling. Park Soo-hyun, team leader of KB Securities emerging market, explained that “China selling US treasury bonds and increasing its gold reserves are seems like preparation for US economic sanctions,” and “Gold is an asset that can be monetized in at any time, even during a war.”
◆South Korea must prepare for war
China is also trying to secure food and energy stably, which are essential for waging war. The representative example is that it decided to receive oil from Saudi Arabia activating exchange. With Russia, it is discussing about installing a new gas pipeline. The same goes for food. China has been steadily increasing its domestic food production. Last year, it produced 68,653 tons of food domestically, which is 5,605 tons more than a decade ago in 2013 (63,048 tons). Food imports, which had been steadily rising, actually fell by 1767 tons, from 16,454 tons in 2021 to 14,687 tons last year.
It is also remarkable that the National Defense Mobilization Department has been established in addition to the National Food and Strategic Reserves Administration to prepare for wartime response system. As China has been crystallizing scenarios for an attack on Taiwan under the banner of “One China,” it has been pointed out that South Korea needs to be prepared. South Korea’s position between the US and China could shrink as factional confrontation intensifies.
Moreover, some are analysing that the possibility of war on the Korean Peninsula is more higher than ever if the cross-strait war occurs. Jeong Ha-neul, president of the System for International Law and Order explained that “The period of peace on the Korean Peninsula, which lasted for about 30 years after the Clinton administration’s crisis, has already ended,” and “South Korea needs to thoroughly prepare for war, as if the war occurs, participation of North Korea is 100 percent.” Lee Chul, an expert on China said that “It’s too late to make countermeasures after the war has started,” and “We should have a sense of crisis about the cross-strait war and prepare countermeasures for each scenario.”
