China will be an incomplete power until it reaches US financial power, says analyst

President Donald Trump’s summit with his Chinese counterpart Xi Jinping ended last week without a major breakthrough but still achieved Beijing’s goal of putting itself on equal footing with the United States.

Meanwhile, China’s industrial power continues to boost its export leadership, its artificial intelligence is already close to the most advanced models and its military capabilities are increasingly sophisticated.

With the US embroiled in Iran, alliances fraying and debt mounting, the narrative about the United States has moved in the opposite direction: that of a superpower in decline.

“But in at least one area — the financial dispute — the opposite is true. China is stagnating, allowing the United States to dominate through inertia,” said Ruchir Sharma, president of Rockefeller International, in an opinion piece in the Financial Times.

The history of past empires shows that increased economic influence typically leads a currency to capture a larger share of global reserves, he noted.

But the Chinese yuan, also called renminbi, represents just 2% of assets held by central banks around the world, even though the Chinese economy accounts for 17% of global GDP. Likewise, China accounts for 15% of world trade, while the yuan is used in just 2% of commercial invoices.

In contrast, the dollar accounts for about 58% of global reserves, although this share is declining, and for 54% of trade invoices. Furthermore, almost 90% of foreign exchange transactions carried out in the over-the-counter market are made in dollars.

Sharma estimated that the world’s second-largest economy is between 30 and 40 years behind the historical trajectory of the superpowers. This delay also draws attention to the explosive growth of global finance, with the value of financial assets having quadrupled in the last five decades.

The “exorbitant privilege” of dollar dominance has long been known, allowing the United States to borrow at lower costs than its overspending finances would normally allow. The US has also drawn heavily on the dollar to impose financial sanctions — a tool the yuan does not offer.

“China will remain an incomplete superpower until it can match this financial power,” Sharma wrote. “For decades, it kept its financial system more closed than that of any other major nation.”

As a result, foreign investors own less than 5% of stocks and bonds in China, while capital controls have curbed much of the sharp expansion of the domestic money supply, he added, describing Chinese markets as a “local prison.”

Beijing fears capital will leave the country if restrictions are eased, but investors will not see China as a safe place until the yuan trades more freely, Sharma said.

Still, China is trying to make the yuan a more international currency. It has been used more frequently in the oil trade, and the war in Iran has led to speculation that the “petrodollar” could give way to the “petroyuan.”

Additionally, the use of the yuan among central banks around the world has grown recently. By the end of March, the People’s Bank of China had made available US$16.4 billion through currency swap lines, the highest amount in two years and the steepest quarterly increase in three years.

Indicating how seriously the US takes currency swaps, Treasury Secretary Scott Bessent recently suggested that such lines could help reinforce the dollar’s dominance and role as a reserve currency.

On another front, the yuan also rose one position in the global ranking and became the fifth most used currency in international payments, according to the financial platform SWIFT.

Even so, Sharma believes that China needs to make its system more flexible, adding that less stringent controls can, in practice, encourage capital inflows rather than causing resource outflows.

“Without a bolder opening, China will never challenge the financial dominance of the United States nor fully realize its ambition to become a superpower,” he said.