Source: Fortune
Summary
Despite China’s growing economic and military might, its currency, the yuan, remains weak, accounting for only 2% of global reserves and 2% of trade invoices. In contrast, the US dollar dominates global finance, with 58% of reserves and 54% of trade invoices. According to Ruchir Sharma, chair of Rockefeller International, China’s financial system is “incomplete” due to its tightly sealed financial system and capital controls, which prevent foreign investors from owning more than 5% of Chinese stocks and bonds. Sharma argues that China must loosen its controls to challenge America’s financial dominance.
Our Reading
The numbers tell one story.
China’s yuan lags behind the US dollar in global finance, despite China’s growing economic and military power. The yuan accounts for only 2% of global reserves and 2% of trade invoices, while the US dollar dominates with 58% of reserves and 54% of trade invoices. China’s capital controls and tightly sealed financial system prevent foreign investors from owning more than 5% of Chinese stocks and bonds. Sharma’s estimate that China is 30-40 years behind the historical trajectory of superpowers in terms of financial development highlights the country’s financial lag.
China’s “incomplete” financial system is a major obstacle to its superpower ambitions.
Author: Evan Null
