December 05
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Global financial companies, still suffering multibillion-dollar losses in Russia, are now reassessing the risks of doing business in Greater China after escalating tensions over Taiwan, Bloomberg wrote.

Lenders, including Societe Generale SA, JPMorgan Chase & Co. and UBS Group AG, have asked their employees to review contingency plans to manage risks in the past few months. Meanwhile, global insurers are refusing to write new policies to protect firms investing in China and Taiwan, and political risk coverage costs have risen more than 60 percent since the war in Ukraine.

The political risk associated with potential U.S. sanctions and the likelihood that China will respond by restricting capital flows have become a headache for risk managers, said Mark Williams, a professor at Boston University. The sanctions war will significantly increase the cost of doing business and push U.S. banks to rethink their strategy toward China.

The heated rhetoric between Beijing and Washington over Taiwan has alarmed firms, just months after the war in Russia unexpectedly forced the world's biggest lenders to go out of business and stop serving super-rich clients. Last week, U.S. lawmakers stepped up pressure on banks, forcing them to answer whether they would withdraw from China if it invaded Taiwan.

While financial executives said they considered the risk of armed conflict in North Asia low, they noted that tit-for-tat sanctions between the U.S. and China that disrupt the flow of finance and trade are more likely than ever.

Leaving would mean a dramatic change of course for Wall Street firms that have invested billions in China after it opened up its financial sector in recent years. Lenders ranging from Goldman Sachs Group Inc. to Morgan Stanley have taken control of joint ventures and requested additional banking licenses. The combined disclosed exposure of Wall Street's largest banks to Chinese banks at the end of 2021 was about $57 billion.

Those ambitions are now threatened by rising tensions between the U.S. and China. Last week, the chief executive of Citigroup Inc. Jane Fraser faced questioning from lawmakers about whether the lender would give up China if it invaded Taiwan. She responded in the same way as other banks, she would seek advice from the U.S. government before making a move.

As China's Global Times reported last week, that an exit from China would only hurt these firms. U.S. politicians want to increase pressure to force leading U.S. financial institutions to push back on the Chinese market, the Communist Party newspaper said. There is no denying that China's financial markets could lose some capital, but U.S. banks could also face worsening economic problems as a result of Washington's poisonous decision.

Sources said firms have been stress-testing over the past few months to see if they can handle the risk of a sudden market decline by examining their exposure to currency, bond and stock trading. While banks often make contingency plans without putting them into action, escalating tensions add urgency.

According to two bank executives, who asked not to be named when discussing the sensitive issue, the most important thing is to ensure staff safety, identify customers who could be sanctioned, and examine plans to mitigate counterparty risk and potential trading losses.

Meanwhile, according to Willis Towers Watson Plc, insurers have raised prices by an average of 67% to cover political risks related to China. According to Laura Burns, senior vice president of political risk at Willis Towers Watson of London, companies that can insure face a dramatic redistribution of pricing that has been very acute for China.

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