Financial Security: Lian Ping on US Sanctions, SWIFT and De-Dollarisation

"Financial sanctions and countermeasures will probably become one of the key battlegrounds in the next phase of strategic competition between China and the United States."

Today’s edition opens with an introduction by Bert Hofman, Professor at the National University of Singapore’s East Asian Institute. Before joining NUS, Bert worked at the World Bank for 27 years, serving as Country Director for China (2014–2019), Country Economist (2004–2008) and Chief Economist for East Asia and the Pacific (2011–2014). He recently co-authored a report with Johannes Petry entitled “Internationalization of the RMB: Status, Options and Risks”. Many thanks to him for contributing to this newsletter and sharing his insights. For more of his thoughtful analysis, I highly recommend subscribing to his Substack. — Thomas

The international role of the Renminbi (RMB) has regained attention in recent years. At the Lujiazui Forum in Shanghai in June, central bank governor Pan Gongsheng reinforced the message that China is seeking a larger role in the international monetary system, including through greater use of its currency, the RMB. Sixteen years ago, former governor Zhou Xiaochuan covered very similar ground at the London G-20 summit in 2009, in the aftermath of the global financial crisis—which once again highlighted the so-called “dollar problem”. The centrality of the dollar in the international financial system has meant that, in times of financial stress, when demand for liquidity surges, a scarcity of dollars emerges. Moreover, in times of major adjustments of US monetary policy, countries indebted in USD can suddenly face much higher debt servicing costs—or even a debt crisis. Furthermore, the dollar-based system was (and remains) slow and expensive in executing international payments. Governor Zhou’s proposal was to enhance the role of the Special Drawing Right (SDR) as an international reserve currency. Failing that, a larger role of the Renminbi was desirable in his view. Since then, the RMB has made modest gains in international usage and has been included in the SDR basket of currencies since 2016, but the dollar continues to dominate the international financial system.

What is new in Pan’s speech compared to Zhou’s 2009 proposal, is the focus on sanctions. As Pan puts it: “The geopolitical rivalry has escalated. The traditional cross-border payment infrastructures can be easily politicised, weaponised and used as unilateral sanction instruments, thus undermining the international economic and financial order.” The sanctions imposed on Russia following its invasion of Ukraine have sparked a lively debate in China as to how the country can protect itself against similar measures. Lian Ping’s essay below contributes to that debate. Lian sees the risk of sanctions against China through the dollar-based international payment system (CHIPS) and the SWIFT messaging system as still small—arguing that China is “too big to sanction” and that a confiscation of China’s dollar assets might hurt the US as much as China. As Lian writes: “Following the freezing of Russia’s foreign exchange reserves by the US and Europe, there was strong international backlash and a surge in calls for de-dollarisation, serving as a clear warning against similar US actions [in the future].”

Nevertheless, it is better to be safe than sorry, and Lian offers several suggestions for how China can protect itself against potential US financial sanctions. He calls for a deeper understanding of the US sanctions regime and stronger domestic defences against it. He argues for a “blocking statute” similar to that of the European Union, designed to counter the extraterritorial application of US law. Lian also advocates more proactive measures, including further opening of its capital markets and greater internationalisation of the RMB, which would require expanding China’s own payments system (CIPS), increasing the share of the RMB in China’s overseas financing, as well as better and less cumbersome access to Chinese capital markets.

As Mulder (2025), Blustein (2025) and others have pointed out, sanctions have sparked talk of de-dollarisation before, but this time may be different, as the global geopolitical balance is shifting away from the US. Yet without the kinds of reforms that Lian proposes, and many more, it may not be the RMB that stands to benefit.

— Bert Hofman

Key points

1. US financial sanctions and Chinese countermeasures are poised to become a major battleground in the evolving strategic competition between China and the United States.

2. US sanctions are likely to focus on excluding China from the SWIFT system and freezing its foreign exchange reserves.

3. Although the likelihood of such a doomsday scenario remains low, Donald Trump’s penchant for “extreme and unorthodox” actions keeps it within the realm of possibility.

4. Even so, this outcome remains improbable because China has become “too big to exclude” from SWIFT. Its international economic and financial influence means any blanket ban would face significant legal, economic and political resistance.

5. Moreover, although the US dominates dollar clearing via CHIPS, SWIFT itself is a Belgian cooperative whose 25-seat board would need to vote. Securing majority support to disconnect China is unlikely without a UN-style mandate.

6. Removing China from SWIFT would also push business towards China’s own CIPS network, eroding SWIFT’s relevance and harming the many member banks whose revenues depend heavily on China-related trade.

7. A large-scale asset freeze could backfire on America by undermining confidence in US Treasuries and further accelerating the global trend towards de-dollarisation. Resistance by certain banks fearing for their reputation would probably also emerge.

8. Even if Washington attempted such a freeze, the sheer scale and global dispersion of China’s dollar holdings — much of it held in secondary custody outside the US — would create a "too many to punish" problem.

9. Taken together, the most likely US approach is incremental sanctions: targeting selected mainland or Hong Kong entities first, then gradually widening the net, rather than launching a sweeping attack on China’s entire financial system.

10. Against this backdrop Beijing should:

    1. Pass an EU-style “blocking statute”, map vulnerable sectors in advance and develop credible counter-sanction options to deter escalation.

    2. Strengthen economic ties with Europe to encourage “neutrality” — or at the very least, “strategic non-intervention” — should Washington ever impose financial sanctions on China.

    3. Expand financial market opening to increase the dependence of foreign institutions on China and accelerate renminbi internationalisation (incl. CIPS expansion, offshore RMB hubs and larger gold reserves to strengthen monetary resilience).

    4. Increase liabilities to the US while strategically reducing USD assets to deter asset freezes and maintain a reciprocal buffer.

    5. Manage outbound investment carefully to reduce sanction exposure and place greater emphasis on encouraging and expanding domestic investment.

The Author

Name: Lian Ping (连平)
Born: 1956 (age: 68-69)
Position: President and Chief Economist, Guangkai Chief Industry Research Institute; Chairman, China Chief Economist Forum; Independent Director for several companies
Previously: Chief Economist for over a decade, preceded by various positions at the Bank of Communications (1998–2019); Professor and Director of several departments, East China Normal University (1987–1998); Member, China Finance 40 Forum
Part-time and honorary roles: Adjunct professor, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University; Honorary Director and Doctoral Supervisor, School of Economics and Management, East China Normal University; Distinguished Professor, School of Management, Fudan University
Other: Frequently participates in expert symposiums hosted by senior officials and state leaders; worked as a farmer for several years during the Cultural Revolution
Research focus: Macroeconomic policy and trends; monetary and financial policy; commercial banking
Education: BA (1982), MA (1987) and PhD (1997), East China Normal University
Experience abroad: None

LIAN PING: ASSESSING THE RISKS OF US FINANCIAL SANCTIONS AGAINST CHINA
Lian Ping (连平)
Published by China Chief Economist Forum on 29 May 2025
Translated by Jan Brughmans
(Illustration by OpenAI’s DALL·E 3)

As the United States continues to impose abusive tariff policies and China responds with firm and forceful measures, concerns have repeatedly emerged in the market about the possibility of US financial sanctions against China. The focal points of such sanctions are likely to centre on excluding China from the SWIFT system and freezing China’s foreign exchange assets.

How likely is it that the US will impose such financial sanctions on China now and in the near future? This article seeks to explore that question.

I. China might just be “too big to exclude” from SWIFT

Should the US wish to impose financial sanctions on China, it would need to rely on the support of the dollar-based [international] financial infrastructure — specifically, two key systems: CHIPS (Clearing House Interbank Payments System, based in New York) and SWIFT (Society for Worldwide Interbank Financial Telecommunication). Although multiple offshore clearing centres exist worldwide, the final settlement of US dollar transactions must be routed through CHIPS. CHIPS is crucial because, once a bank’s access to it is blocked administratively, that bank loses its ability to provide cross-border dollar settlement services to its clients, which in turn forces downstream institutions that rely on its services to cease operations. However, simply cutting off a bank’s access to CHIPS does not eliminate all means of using US dollars, as transactions can still be routed through other banks’ accounts without directly involving CHIPS. The most effective way to cut off a bank’s access to dollar transactions fully is to exclude it from the upstream payment messaging system — namely, SWIFT.

SWIFT functions as a global messaging infrastructure for interbank payment instructions, supporting not only US dollar transactions but also those denominated in euros, Japanese yen and Chinese renminbi. Notably, certain cross-border transactions processed via China’s Cross-Border Interbank Payment System (CIPS) are dependent on SWIFT for message transmission. Exclusion from SWIFT severs a financial institution’s access to front-end US dollar messaging capabilities and disrupts its ability to transact in other major currencies. This de facto disconnects the institution from the global financial messaging network, impeding bilateral and multilateral financial communications and effectively suspending its participation in international settlement flows. Among the core instruments of US financial sanctions is the denial of SWIFT access to designated entities.

SWIFT is neither a US-owned entity nor subject to the jurisdiction of the United States government. It operates as a non-profit international cooperative, established by banks. The organisation is incorporated and headquartered in Brussels, Belgium. SWIFT’s highest governing body is its Board of Directors, which comprises 25 seats: one held by China, 17 by Europeans, and two by the United States. Major decisions are taken by majority vote. Although the US holds only a limited number of board positions, the US dollar’s role as the dominant global reserve currency—accounting for over 40% of SWIFT message traffic—and the United States’ status as the world’s largest economy have historically resulted in the appointment of an American as SWIFT’s Chairperson. More critically, however, the United States exercises jurisdiction over CHIPS, which serves as the principal mechanism for the final settlement of dollar-denominated transactions. This grants the US significant influence over SWIFT’s operations.

From a comprehensive perspective, excluding China from the SWIFT system would not be easy. First, there must be a legitimate basis for such action. In the case of Iran, access to SWIFT was revoked following a United Nations Security Council resolution endorsing sanctions, thereby conferring both formal legitimacy and procedural compliance. Russia was thrown out of SWIFT following its invasion of Ukraine. By contrast, China is not engaged in terrorism, armed conflict [战争行为] or actions considered crimes against humanity—meaning that any attempt to fully sanction China via SWIFT would face substantial deficits in both legal justification and international legitimacy. However, if war were to break out in China’s neighbourhood, particularly across the Taiwan Strait, it is conceivable that Western powers might attempt to use SWIFT exclusion as a so-called “sanction”. It is likely that the US and others are already considering this option as a contingency measure for future action against China.

The vast majority of SWIFT member states maintain substantial economic and trade relations with China, which is frequently among their largest trading partners. From the perspective of their national interests, the exclusion of China from the SWIFT network would result in significant disruption to the settlement of trade and investment flows between them and China.

Were China to be excluded from SWIFT, its sheer economic scale would render any attempt at decoupling highly disruptive for the global economy. Although, as of March 2025, SWIFT reported that the renminbi accounted for only 4.13% of global payment transactions—a relatively modest share—China remains the world’s largest trading nation and the second-largest source of foreign direct investment. It maintains economic partnerships with over 100 countries. In 2024, China was responsible for 14.6% of global trade volume, while its combined outbound and inbound direct investment represented more than 21% of the global total. Consequently, a significant portion of transactions settled in non-renminbi currencies via the SWIFT system remain linked to China. This increases the likelihood of the emergence—or wider adoption—of an alternative messaging infrastructure centred around China. In fact such a system already exists: the Cross-Border Interbank Payment System (CIPS). Countries could naturally begin to adopt CIPS to meet their settlement requirements. Given China’s economic weight and long-term growth trajectory, SWIFT’s own relevance and global prominence could diminish over time—an outcome it would be strongly incentivised to avoid.

Most SWIFT members are financial institutions from various countries, among which the major ones have deeply intertwined interests with Chinese institutions. If China were excluded from the system, these financial institutions would struggle to do business with Chinese counterparts resulting in significant losses. Therefore, many members would be unwilling to go along with such a move solely at the behest of the United States. There is good reason to believe that, in the absence of a legitimate and lawful basis, any proposal to exclude China from SWIFT would struggle to pass the Board of Directors. Given the scale of its economic footprint, China enjoys a certain “too big to exclude” position within the SWIFT system.

For the sake of argument, even if SWIFT were to decide to exclude China, the extensive economic and trade relations that these countries have with the PRC would mean that associated payment settlements could not be carried out via SWIFT—but they could still be processed via China’s CIPS, which would thereby be significantly strengthened. Compared with the imposition of tariffs—which requires only the signature of the US President—removing China from SWIFT is vastly more complex as it necessitates a board-level vote among a diverse group of member institutions. The former is a function of government, whereas the latter is an institutional industry decision, subject to numerous constraints. That said, the United States might still attempt to sanction China through the CHIPS system, particularly by targeting specific entities or imposing partial restrictions. However, even such “sanctions” would risk undermining CHIPS itself, as excluding China from SWIFT would be tantamount to removing a central pillar of the system [台柱子]—an action that would inevitably impair its overall functionality.

II. The United States might face difficulties to freeze China’s dollar assets as it would probably fall into the “too many to punish” dilemma [法难责众].

By the end of 2024, China’s official foreign exchange reserves totalled approximately US$3.2 trillion, including an estimated US$759 billion in holdings of US Treasury securities. At first glance, with total external debt projected to reach US$2.42 trillion by the end of the next quarter, China’s net foreign exchange assets might appear to fall below US$1 trillion. However, this is not the case. Of China’s external liabilities, approximately US$1.21 trillion is denominated in local currency—valued and repayable in renminbi rather than in foreign currencies. Accordingly, China’s actual net foreign exchange asset position is closer to US$2 trillion. Concerns have emerged in financial markets that, should the United States impose financial sanctions against China, the entirety of China’s US dollar-denominated assets could be frozen or even subject to confiscation—posing a potentially severe financial loss. The precedent set by sanctions imposed on Russia serves as a cautionary example. This raises the question: how probable is such a scenario?

Freezing China’s foreign exchange assets would require a number of preconditions. Under US legislation governing financial sanctions, the President may authorise such measures during a declared state of emergency. The most severe form involves hostile economic action against the targeted country, including the freezing or even confiscation of its assets. These assets are not limited to US dollar holdings but encompass all assets located within the jurisdiction of the United States. In this context, the term “emergency” is generally interpreted as a state of war—i.e., when the two countries are engaged in open hostilities. In such circumstances, the grounds for freezing or seizing an enemy state’s assets are generally considered sufficient. Historical precedents include the US freezing Japanese assets following the attack on Pearl Harbor in 1941, and Chinese assets during the Korean War [抗美援朝] in 1950. These examples suggest that the principal precondition for the freezing of a country’s assets in the United States is the existence of an actual state of war between the two parties. Should China and the United States enter into armed conflict, the question of whether asset freezes would occur becomes moot; the more pressing concern would be the scale of potential losses and the appropriate strategic response.

Admittedly, given Donald Trump’s penchant for extreme and unorthodox approaches, there seems to be little he would shy away from doing. In 2019, despite China falling far short of the criteria defined by the United States itself, Trump nonetheless unilaterally labelled China a “currency manipulator”—a move widely regarded as an absurd and crude act of economic bullying, leaving behind an absurd and scandalous hegemonic behavioural [precedent] in the realm of international finance. Although no direct military conflict has erupted between the US and Russia, nor between the EU and Russia, both have proceeded to freeze Russia’s foreign exchange reserves. Looking ahead, there is reason to remain vigilant against the possibility that the US might deliberately provoke a limited conflict as a pretext to justify the freezing of China’s assets held in the United States. However, the potentially grave consequences of such a regional conflict are likely to compel serious deliberation within the US itself.

The freezing of a country’s assets by the United States can broadly be divided into two categories. The first comprises assets held by the sanctioned state within the territory of the United States; the second includes the sanctioned state’s US dollar-denominated assets held outside the United States. The former category encompasses not only dollar assets but also all other forms of property, such as gold reserves stored on US soil. Once financial sanctions are initiated, the United States may invoke relevant provisions of its domestic legislation to freeze all assets belonging to the sanctioned country within its jurisdiction. In contrast, the United States has neither the legal authority nor the practical means to directly seize or freeze a sanctioned state’s assets located outside its territory—with one key exception: US dollar-denominated assets. This is because the global US dollar clearing system effectively extends the US’ extraterritorial jurisdiction, expanding the reach of its so-called “long-arm” enforcement powers [“长臂管辖”的“执法范围”].

The vehicles through which the United States freezes or confiscates a sanctioned country’s US-dollar assets are its US settlement accounts, which can be categorised into two types: primary custody accounts [一级存储] and secondary custody accounts [二级存储]. Primary custody accounts refer to US dollar accounts held directly with US-based financial institutions. Secondary custody accounts refer to US dollar accounts held through non-US financial institutions. Although secondary custody accounts lie outside the immediate jurisdiction of US sanctions, they are ultimately cleared through the CHIPS system. Once the United States initiates financial sanctions against a given country, it can directly freeze assets held in that country’s primary custody accounts. In addition, it may compel non-US financial institutions to freeze US dollar assets held in secondary custody accounts. In most cases, non-US financial institutions comply with such unreasonable demands out of fear for secondary sanctions or other punitive measures [惧怕“连坐”] imposed by the United States.

Were the United States to impose so-called financial sanctions on China, the prospect of effecting a comprehensive freeze of China’s assets would probably encounter substantial resistance from both domestic and international financial institutions. Broadly speaking, US dollar-denominated assets comprise approximately 60% of China’s total foreign exchange reserves and are distributed across three institutional categories: Chinese, American and other foreign entities. Chinese financial institutions typically maintain US dollar accounts with American or third-country banks, constituting secondary custody arrangements. Similarly, assets held by China via non-Chinese financial institutions are generally managed through analogous secondary structures. Regardless of the custodial location, all US dollar assets are ultimately subject to clearance via the US dollar clearing infrastructure, rendering a total freeze technically feasible. Upon issuance of a freeze directive, US financial institutions are ordinarily expected to act as first movers—exposing them to substantial financial losses and reputational risk. Such action could also trigger broader concerns among other sovereign asset holders regarding the security of their US-based reserves, thereby fostering institutional reluctance within the American banking sector to fully support such measures.

Although other financial institutions may choose to comply with US demands out of fear of potential repercussions, such cooperation would often come at significant cost to their own commercial interests. Notably, many countries have enacted countermeasures in the form of legislation aimed at resisting the extraterritorial application of US financial sanctions. When invoked, such laws can effectively disrupt the enforcement of those sanctions. If the majority of financial institutions were to refuse cooperation with the United States—and given that the US cannot feasibly exclude all of them from the dollar-based financial system—this would result in a situation where enforcement becomes impracticable due to the sheer scale of non-compliance, a case of “too many to punish” [法难责众].

A substantial portion of China’s US dollar-denominated assets is held in the form of US Treasury securities, which are by nature bearer instruments with legally guaranteed repayment [Note: Strictly speaking, US Treasury securities are not bearer instruments but registered book-entry securities. Their defining feature is the guarantee of repayment, not anonymity.]. Although the United States may be aware of the overall volume of Treasuries held by China, it lacks precise visibility into the specific financial institutions in which these securities are deposited—making full transparency effectively unattainable. Attempts to achieve full traceability would probably conflict with domestic privacy laws in various jurisdictions, particularly in advanced European economies, thereby presenting significant legal and operational obstacles.

In the absence of a state of war, freezing or confiscating large-scale US dollar assets is tantamount to “outright robbery” [明抢] and is widely regarded as morally unacceptable by the international community. Following the freezing of Russia’s foreign exchange reserves by the US and Europe, there was strong international backlash and a surge in calls for de-dollarisation [去美元化], serving as a clear warning against similar US actions [in the future]. This essentially weaponised [武器化] approach has undermined the perceived safety and liquidity of dollar assets and will undoubtedly accelerate the erosion of confidence in both US Treasury securities and the US dollar itself.

By the end of 2024, the total volume of US Treasury debt had exceeded US$36 trillion. Based on the average Treasury yield over the past decade of 2.54%, annual interest payments alone amount to over US$910 billion. In the same year, the US federal government recorded fiscal revenue of US$4.92 trillion and expenditure of US$6.75 trillion, reflecting a severe fiscal imbalance. Servicing the national debt—both principal and interest—has become a significant burden on the US federal budget. In practice, repayment of principal relies heavily on issuing new debt to roll over existing obligations [借新还旧]. Looking ahead, the scale of US government debt is expected to continue expanding, with a corresponding rise in credit risk.

At present, US Treasury securities held by the Federal Reserve have accounted for over 60% of its total assets for four consecutive years, leaving very limited scope for further expansion. Moody’s has already downgraded the US government’s sovereign credit rating from the highest level of Aaa to Aa1. Previously, both Standard & Poor’s and Fitch had also lowered their ratings from AAA to AA+. This indicates a clear downward shift in the credit standing of the US government from its historical peak.

If the pursuit of so-called “sanctions” were to cause difficulties in servicing US Treasury debt, leading to a sharp decline in the US dollar index and a collapse of the US government’s creditworthiness, the cost would far outweigh any intended gain. Finance is characterised by strong externalities and high sensitivity. Although the US financial system appears robust, the federal government bond market has become a key vulnerability. Any action—direct or indirect—that undermines confidence in the dollar or US Treasury securities is something the US government will probably approach with great caution.

III. Guarding against the risks of US financial sanctions.

In summary, under non-wartime conditions, the likelihood of the United States imposing comprehensive financial sanctions against China in the near or medium term appears relatively low. However, it is plausible that the US may pursue a strategy of “targeting selected entities first, then gradually expanding the scope of sanctions, with the ultimate aim of excluding China from the US dollar system.” In recent years, a steady stream of US financial sanctions targeting institutions and individuals from mainland China and Hong Kong may be seen as concrete manifestations of this approach. The so-called “Mar-a-Lago Agreement” appears to hint at a broader strategy of exerting pressure in the financial domain.

Financial sanctions and countermeasures will probably become one of the key battlegrounds in the next phase of strategic competition between China and the United States. Our country should adopt a proactive stance in formulating appropriate responses. Several policy recommendations are set out below:

1. [This issue] must be given high strategic priority and preparations must be accelerated. US financial sanctions have evolved into a strategic and systematic tool for suppressing competitors and represent a long-standing area of structural advantage for the United States. However, domestic research on this topic remains at a relatively broad and general level. There is still a limited understanding of the nature of the United States’ so-called “smart sanctions” [聪明的制裁] and this cognitive gap risks leading to strategic misjudgements and tactical vulnerability. It is therefore essential, first and foremost, to deepen strategic-level understanding of the objectives, mechanisms and conditions underpinning US financial sanctions. At the same time, appropriate planning must be undertaken, with the development of multiple tactical response scenarios to ensure a dynamic and optimised policy posture.

2. Corresponding “blocking statutes” [阻断法] should be formulated. Following the events of 9/11, the United States intensified its use of secondary sanctions and tightened control over secondary custody arrangements [二级存储], significantly infringing upon the interests of the European Union. In response, the EU introduced “blocking statutes” to legally reject the extraterritorial application of US jurisdiction to its own enterprises. This helped reduce the unpredictability and arbitrariness of US financial sanctions. It is recommended that China draw lessons from the EU by enacting similar blocking legislation or by amending and refining the existing Anti-Foreign Sanctions Law to make it more targeted and effective. At the same time, forward-looking research should be conducted to identify the types of Chinese enterprises and sectors most likely to face sanctions in the future.

3. Proactive and effective countermeasures must be developed. In theory, the Nash equilibrium in a dynamic game is “tit for tat” [以牙还牙], though this is not necessarily the optimal solution. In the context of US-China relations, this is reflected in China’s stance of “not provoking trouble, but not fearing it either” [不惹事但也不怕事]. US financial sanctions against China constitute an unjustified act of coercion, and China is entitled to respond. However, such responses should be rational, measured, and effective—aimed at inflicting real costs on the United States to deter future acts of economic bullying or reckless behaviour. In the face of a shifting geopolitical environment, China must enhance the initiative of its countermeasures to ensure timely and effective responses. A comprehensive list of China’s potential financial countermeasures against the US should be developed as a matter of priority and adjusted dynamically in line with the evolution of bilateral tensions.

4. Europe’s watchful position and neutrality [观望和中立] should be secured. In the context of the strategic competition between China and the United States, Europe’s position is of considerable importance. Given China’s close economic ties with many European countries, it is likely that—provided their core interests are not directly affected—most European states would adopt a largely detached stance. At present, relations between Europe and the United States are rather delicate, characterised by a mix of alignment and divergence. Against this backdrop, China should strengthen its economic and trade engagement with Europe in order to encourage a position of neutrality—or at the very least, strategic non-intervention—should the US pursue financial sanctions [against us].

5. Further opening up of China’s financial markets and industries should be pursued to make foreign financial institutions more dependent and engaged [粘性; lit. “stickier”]. The greater the level of market openness, the more interdependent the relationships become—creating a dynamic of mutual integration. As China’s economy continues to grow, this will help solidify its position in the global financial system as “too large to exclude”. Given the current scale and regulatory capacity of China’s financial markets, there is little cause for concern that a greater presence of foreign financial institutions would pose undue risk or pressure. The next phase of opening should place greater emphasis on international cooperation and exchange in the field of financial technology, while accelerating the development and refinement of digital financial infrastructure. By modernising traditional financial operations through advanced technologies, China can help shape a more efficient and strategically favourable global financial network.

6. The internationalisation of the renminbi should be accelerated and its role in global reserves enhanced. In the current period and foreseeable future, the global trend of “de-dollarisation” may present a favourable opportunity for advancing the renminbi’s international standing. By improving renminbi payment and clearing infrastructure, its cross-border use in China’s external trade and, [more broadly,] economic ties can be further expanded. This would serve not only as a buffer in the event of US financial sanctions, but also aligns with the broader direction of future international monetary diversification. Specific measures include: encouraging greater use of the renminbi in trade and investment, particularly among Belt and Road Initiative partner countries; promoting the global expansion of Chinese banks to facilitate more convenient cross-border use of the renminbi; enhancing the CIPS (Cross-Border Interbank Payment System) to ensure broader international adoption and to lay a solid foundation and favourable infrastructure for wider future usage; deepening engagement with major international financial centres to support the development of the global offshore renminbi market; steadily increasing gold reserves while maintaining a stable level of foreign exchange reserves to strengthen the credit foundation of the renminbi; and strengthening coordination with the monetary authorities of key trading and investment partner economies to promote cross-border use of the renminbi.

7. Liabilities owed to the United States should be increased appropriately [适当增加对美国的债务], while holdings of US dollar assets should be reduced [减少美元资产]. When a sanctioned country holds liabilities denominated in the sanctioning country’s currency that are roughly equivalent in scale to its assets, a comprehensive freeze of those assets becomes largely ineffective. In such a scenario, the sanctioned country could adopt reciprocal measures by freezing a comparable volume of the sanctioning country’s assets, thereby neutralising the intended impact. According to official statistics alone, China currently holds no less than US$1.5 trillion in net foreign exchange assets, excluding privately owned offshore assets held in foreign financial institutions. It is estimated that over half of these assets are denominated in US dollars. To mitigate the risks associated with excessive exposure to US dollar-denominated assets, it is advisable to increase China’s liabilities to the United States strategically while reducing its US dollar assets — especially highly transparent USD assets — but it should not completely offload its holdings of US Treasuries. Establishing a broadly balanced asset–liability position vis-à-vis the United States could serve as a strategic buffer in the event of financial sanctions. Should the United States seek to freeze Chinese dollar assets, the existence of significant corresponding US liabilities would introduce a degree of reciprocal risk, potentially deterring such action. Holding a meaningful volume of US Treasuries could also provide a lever through which China may respond in kind, applying pressure to the US Treasury market as part of a broader counter-sanctions strategy.

8. Outbound investment should be planned and managed in an orderly manner. As the process of de-globalisation continues to deepen, cross-border investment is increasingly subject to elevated risks. For some time, the international financial environment has been overshadowed by the growing prevalence of US financial sanctions. At present, China’s net foreign exchange asset exposure remains relatively large, highlighting the need for more strategic planning and structured management of outbound investment—including both direct investment and portfolio investment. From the perspective of advancing the new dual circulation development paradigm—with the domestic economic cycle as the main pillar—greater emphasis should be placed on encouraging and expanding domestic investment. This will help stimulate domestic demand further, improve the alignment between supply and demand and promote high-quality economic development.

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