Quick Summary
- A former advisor to China’s central bank suggests increasing imports and settling payments in yuan to rebalance trade and boost the currency’s global standing.
- Liu Shijin proposes a five-year strategy shift to achieve a more balanced import-export ratio, leveraging China’s significant trade surplus.
- By importing more goods and services and using yuan for transactions, China could significantly increase offshore yuan liquidity.
- This strategy aims to enhance the yuan’s international appeal and bolster Chinese consumers’ purchasing power abroad.
- International pressure is mounting on China to address its trade imbalances, with potential repercussions like EU tariffs being considered.
- Beijing has announced plans to boost domestic spending and reduce export reliance to safeguard its economy from global trade risks.
China’s Strategic Shift: Rebalancing Trade and Elevating the Yuan
A significant shift in China’s economic strategy, focusing on rebalancing international trade and expanding the global use of its currency, has been proposed by a former influential advisor to the People’s Bank of China. Liu Shijin, who previously served on the central bank’s monetary policy committee, advocates for a substantial adjustment in China’s foreign trade approach over the next five years to achieve a more balanced relationship between imports and exports.
Liu, currently holding advisory roles including with the China Council for International Cooperation on Environment and Development (CCICED), believes this strategic redirection is crucial. During a recent address, he emphasized the importance of reaching a fundamental equilibrium between the goods and services China brings into the country and those it sends abroad. This proposed strategy aims to address the persistent trade surpluses that have characterized China’s economic performance.
đź’ˇ Insight: A consistent trade surplus indicates a nation is exporting more than it imports, which can lead to an accumulation of foreign currency reserves but may also signal a potential over-reliance on external demand and underdeveloped domestic consumption.
Liu Calls for a New Economic Strategy to Boost Yuan’s Global Role
Liu highlighted China’s substantial trade surplus, estimated at approximately $1 trillion in 2024. He proposed that China could facilitate a significant increase in the liquidity of offshore yuan by importing goods and services equivalent to this surplus and settling these transactions in yuan. This move, he suggested, would naturally elevate the currency’s international presence.
As a distinguished Chinese economist and Vice Chairman of the China Development Research Foundation, Liu argued that actively promoting the yuan’s value and usage on the global stage could solidify its position as a major international currency. Furthermore, this strategic pivot is expected to enhance the purchasing power of Chinese residents while traveling overseas, thereby stimulating international spending and economic exchange.
đź“Ť Analysis: Increasing the global circulation of the yuan through trade settlement is a key component of China’s long-term strategy to reduce its dependence on the US dollar and establish greater financial autonomy in international markets.
While Liu’s perspective may not represent immediate official policy, it reflects growing international pressure on China to address its considerable trade imbalances. Concerns are being voiced by major economic blocs, with French President Emmanuel Macron recently warning of potential strong measures, including tariffs, by the European Union if China continues to ignore its widening trade deficit with the bloc.
The EU’s goods trade deficit with China has surged significantly since 2019, and France has experienced a growing trade gap with the world’s second-largest economy. Macron has consistently advocated for a unified European response to China’s trade practices, calling for enhanced protections for European industries against what he describes as an influx of Chinese imports.
China’s Economic Adjustments and International Repercussions
In response to these external pressures and internal economic considerations, Beijing has committed to implementing a robust strategy aimed at boosting domestic consumption over the next five years. This initiative seeks to lessen the nation’s reliance on export-driven growth, signaling a fundamental shift in its economic development model.
Leading Chinese officials have publicly affirmed their dedication to enhancing domestic demand, prioritizing this goal for 2026. This focus is intended to build a more resilient economy, better insulated from the volatile global economic landscape and the inherent risks associated with international trade. This commitment was underscored by reports on decisions made during a session of the Communist Party’s Politburo.
đź“Š Data Point: Recent economic reports indicate that retail sales in China experienced a decline for the fifth consecutive month in October. This internal consumption trend occurred even as exports surged, contributing to China’s overall trade surplus exceeding $1 trillion in the same month.
Concurrently, China is adopting a firm stance on elevating the yuan’s international profile, particularly as the US dollar faces scrutiny due to domestic financial challenges and evolving perceptions of the Federal Reserve’s independence. This dual approach—balancing trade and promoting currency internationalization—is central to China’s evolving economic agenda.
⚡ Tip: To accelerate the yuan’s global adoption, Liu suggested that China should expand the range of financial products offered in offshore markets, including bonds, stocks, funds, and derivatives, all priced and traded in yuan.
Liu, who advised the People’s Bank of China on monetary policy from June 2018 to March 2024, believes that the global share of yuan usage should more accurately reflect the sheer scale and importance of the Chinese economy. This sentiment underscores China’s ambition to achieve greater parity with other major global currencies.
Frequently Asked Questions about China’s Trade Strategy and Yuan Internationalization
What is the main proposal from the former central bank advisor?
The primary suggestion is for China to significantly increase its imports and settle these transactions using the Chinese yuan. This aims to balance its substantial trade surplus and boost the global usage of the yuan.
How would increasing imports help the yuan?
By importing more goods and services and paying for them in yuan, China would increase the amount of yuan circulating outside its borders (offshore yuan). This greater availability, or liquidity, helps make the currency more accessible and usable for international trade and finance.
What are the potential benefits for Chinese consumers?
Elevating the yuan’s international status is expected to enhance its purchasing power for Chinese citizens when they travel abroad and engage in international transactions, making foreign goods and services more accessible.
Why is there international pressure on China regarding trade imbalances?
China’s large and persistent trade surpluses have led to concerns among its trading partners, particularly in Europe and North America, about fairness, competition, and potential damage to their own domestic industries. This has prompted calls for rebalancing and, in some cases, threats of protective measures like tariffs.
What is China’s official response to these issues?
Beijing has pledged to implement strategies focused on significantly boosting domestic consumption and reducing its reliance on exports. This shift aims to create a more self-sustaining economic model and mitigate risks associated with global trade volatility.
Final Thoughts on China’s Evolving Economic Landscape
The proposals put forth by Liu Shijin highlight a critical juncture for China’s economy. The ambition to rebalance trade through increased imports and actively promote the yuan’s international role signifies a deliberate move towards a more globally integrated and less export-dependent economic model. This strategic pivot is not merely an internal policy adjustment but a response to both domestic economic imperatives and increasing international scrutiny.
The success of such a strategy relies on multifaceted efforts: encouraging domestic consumption, fostering innovation, and managing international trade relations effectively. By leveraging its economic scale, China aims to enhance the yuan’s standing, potentially reshaping global financial dynamics and reducing its susceptibility to external economic shocks. The coming years will be pivotal in observing how these ambitious plans translate into tangible economic outcomes for China and its global trading partners.
