China’s Financial System Trails US Dominance by Decades
Despite China’s industrial and military advancements, its financial system remains decades behind the United States in global influence, according to Ruchir Sharma, chair of Rockefeller International. While China’s economy accounts for 17% of global GDP, its currency, the yuan, represents just 2% of central bank reserves worldwide and only 2% of global trade invoices. By contrast, the US dollar dominates with 58% of global reserves and 54% of trade invoices.
‘China will remain an incomplete superpower until it can match this financial firepower,’ Sharma wrote.
Sharma highlighted China’s strict capital controls, which have bottled up its domestic money supply and limited foreign investment to less than 5% of its stocks and bonds. This ‘local prison’ approach, he argued, stems from Beijing’s fear of capital flight. However, Sharma noted that loosening restrictions could encourage inflows rather than an exodus, a necessary step for the yuan to gain global trust.
While China has made incremental progress, such as increasing yuan use in oil trade and securing foreign-exchange swap lines, Sharma estimates it is 30 to 40 years behind the trajectory of historical superpowers. Without bolder financial reforms, China’s ambition to challenge US dominance remains unrealized.