Prof Zhang Jun

Opinion | Why China’s rise to financial dominance is inevitable

The problem with many predictions about China’s economy is that they failed to include the important variable of size in their calculations

The growth of China’s bond market, the renminbi’s internationalisation and the emergence of the e-CNY show China’s rise will be faster than many expect

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Why you can trust SCMP

Prof Zhang Jun

Published: 10:00pm, 3 Aug 2021Updated: 10:58pm, 3 Aug 2021

The great powers in history have tended to have one thing in common – size matters. While a large market does not guarantee dominance in other realms, it certainly helps, perhaps more than any other single factor. This was true of the United States, and now it applies to China. Beyond being a leading economic and trading power, China is increasingly becoming a global financial power.

Somehow, many economists in the West did not see this coming. Even a decade ago, few were bullish about the growth of China’s external financial strength, with sceptics highlighting the country’s vulnerabilities.

A rare exception is Brown University’s Arvind Subramanian. In his 2011 book Eclipse: Living in the Shadow of China’s Economic Dominance, Subramanian argued that China’s dominance was imminent and would be broader than virtually anyone expected, involving huge financial influence among the domains that China would reshape.

Given his prescience, the title of the Chinese translation of his book – The Big Forecast – might have been more apt.

Why did Subramanian see what many economists didn’t? His model, unlike the standard analytical framework of economics, included the variable of size.

A decade later, China’s financial influence is becoming impossible to ignore. In the 20 months beginning on April 1, 2019, 364 renminbi-denominated onshore Chinese bonds – issued by China’s government and policy banks – were added to the Bloomberg Barclays Global Aggregate Index.

Opinion | Why China’s rise to financial dominance is inevitable

The problem with many predictions about China’s economy is that they failed to include the important variable of size in their calculations The growth of China’s bond market, the renminbi’s internationalisation and the emergence of the e-CNY show China’s rise will be faster than many expect