At the 2025 Shenzhen International Finance Conference held from November 19 to 21, Yu Yongding, member of the Chinese Academy of Social Sciences and advisor to China's National Development and Reform Commission, emphasized that building a "financial powerhouse" necessitates financial openness. This exposes China to two core international financial risks: U.S. fiscal unsustainability and external imbalances.
While the immediate risk of a U.S. debt crisis remains low, America's persistently high net foreign debt poses significant dangers. A loss of market confidence could trigger multiple crises involving the dollar, U.S. Treasuries, and balance of payments. Yu stressed that China must safeguard its overseas assets by implementing dual-circulation policies, maintaining economic growth through expansionary macro policies, and gradually reducing dollar holdings. Simultaneously, China should advance RMB internationalization, synchronize capital account liberalization with property rights protection and treasury bond market development, and actively participate in global economic governance reform.
Yu highlighted that U.S. fiscal indicators have breached critical warning levels, with potential triggers including failed debt ceiling negotiations or credit rating downgrades. A U.S. debt crisis could lead to soaring bond yields, stock market crashes, and eventual dollar depreciation, disproportionately harming foreign holders of dollar assets.
Notably, while attention focuses on U.S. fiscal challenges, external unsustainability remains overlooked. America's net foreign debt has ballooned to $26 trillion (90% of GDP) in 2024 - 14.4 times higher than 2006 levels. This raises fundamental questions about the dollar's long-term viability as global reserve currency.
Yu proposed that China should: 1. Implement stronger expansionary fiscal/monetary policies while maintaining current account balance 2. Systematically reduce dollar assets while supporting orderly overseas expansion by Chinese firms 3. Create conditions for RMB internationalization through trade settlement mechanisms and "panda bond" promotion 4. Synchronize capital account liberalization with enhanced property rights protection and treasury market development
The economist concluded that China, as the world's second-largest economy and third-largest creditor, should actively shape a more equitable international financial system while prudently managing its exposure to global financial risks.
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