Financial Market Weaponization? US Secondary Sanctions and Chinese Bond Markets

Abstract

Background: U.S. secondary sanctions, and weapon-ization of financial markets overall have become an important geopolitical instrument, impacting global capital flows as well as financial market behaviors. The bond markets in China have become a center of interest in that they have grown and developed amid pressure of the outside world or sanctions. The dynamics of this interaction is crucial in understanding the dynamics of global finance that is changing. Purpose: This paper will examine the effects of U.S. secondary sanctions in Chinese bond markets and discuss the effects of sanctions on market behavior, outward foreign investment, and market volatility. Method: Mixed-method design was used and quantitative econometrics and qualitative policy analysis were used. The research took the data of the world financial databases to analyze bond yields, foreign investment flows, and exchange rates volatility. Whether, there were also policy texts and case studies which were analyzed to give a context to the empirical findings. Findings: The researchers conclude that U.S. secondary sanctions have a noteworthy effect on bond yields and foreign investment and market responses are evident in the negative correlation of market responses to the sanctions periods. The Chinese bond markets are resilient with sanctions varying with liberalization. The volatility of the exchange rates enhanced in the enforcement of the sanctions, which means that the economy was more unstable. Conclusion: The findings indicate the intricate association between the sanctions and the financial market performance. Although the liberalization of the bond market in China provides the alternatives to the U.S. hegemony in the financial sector, the role of secondary sanctions is one of the essential issues determining the movement of capital and investor confidence across the international borders.