Xi's dream of creating a global financial power.

Our briefing for Thursday, 30 January, 2025.

Jan 30, 2025

Our briefing on critical economic and financial developments in China as of Thursday, 30 January, 2025:

The transformation of China into a “great financial power” is one of the core goals of ongoing reforms, but one Chinese economist frets that the economy is already over-financialised, and that financial institutions are “gorging at the trough.”
China’s consumption-drive has expanded, with Beijing using Treasury bonds to fund subsidies of up to USD$70 for individual purchases of smartphones, smart watches and tablets.

Xi Jinping wants to transform China into the world's next financial superpower.

A leading Chinese economist has expressed concern that the economy has already become excessively financialised, however.

He points out that the added value of the Chinese finance sector comprises an unusually high share of GDP, and fears that financial institutions are still “gorging at the trough” while the real economy struggles.

Financial great power status now China’s official policy goal

In October 2023, China held its first Central Financial Work Conference in six years.

The meeting highlighted the creation of a “great financial power with Chinese characteristics” (中国特色金融强国) as one of the core goals of ongoing reforms.

Beijing has stressed “six key and core financial factors of production” when it come to achieving this goal, including:

A strong currency.
A strong central bank.
Strong financial institutions.
Strong international financial centres.
Strong financial regulation.
Strong teams of financial talent.

As a financial superpower with “Chinese characteristics,” however, Beijing has also stressed several policy goals specific to China.

Chief amongst them is “upholding the concentrated and unified leadership of the Communist Party’s Central Committee of the Chinese financial system.”

Other goals include:

Upholding the value perspective that the people are at the centre.
Upholding the fundamental mission of finance serving the economy.
Upholding the eternal theme of risk prevention and control as part of financial work.
Advancing financial innovation along a market-based, rule-of-law based path.
Upholding financial supply-side structural reforms.
Upholding coordinated financial openness and security.

Is the CHinese economy already too financialised?

Li Yang (李扬), director of China’s National Institution for Finance & Development, points out that China has already made strides in its strategic goal of becoming a global financial superpower.

“Chinese financial institutions have expanded rapidly in size, now equal to around 70% of America’s,” he wrote in a recent opinion piece.

“In 2019, China’s bond market was the world’s second largest - another sign of an ascendant financial power.”

Li is concerned, however, that the drive to transform China into a financial superpower has created the dilemma of “financialisation” of the real economy.

“The trend of financialisation of the real economy is becoming increasingly severe,” Li wrote.

According to Li, the finance sector’s value added share accounted for 8% of Chinese GDP as of the end of 2022.

This was slightly higher than the US, and considerably higher than the prints of 4.8% for OECD nations on average, and 3.8% for EU member states.

Li warns that these figures point not only to creeping financialisation of the Chinese economy, but also excessively high financing costs that ongoing reforms seek to correct.

Is China’s financial sector gorging at the trough?

In Li’s opinion, finance should be an ancillary sector that drives economic growth, without usurping an undue share off profits.

“Finance is intrinsically an intermediary for circulation and a vessel for resource allocation,” Li writes.

“In other words, it’s not a productive sector…if financial sector value add is high, this indicates that the cost of funds is high.”

For this reason, Li points to the reduction of financing costs as a key imperative for tempering China’s ambitions to become a “great financial superpower.”

“When profits in real industries are low or even negative, the financial sector is still gorging at the trough…this is not what the type of finance we want.

“The Central Financial Work Conference has repeatedly stressed the need to ‘reduce overall financing costs’ - this is the situation that it seeks to address.”

Beijing Uses Treasury Bonds to Fund Smartphone Purchases

On 20 January 2025, smartphones and other digital devices were formally included in China’s cash-for-clunkers consumer subsidy policy.

According to state-owned media, a lucky woman in Wuhan became the first buyer under the scheme on that date, receiving her new state-subsidised smartphone via express delivery.

The success of the cash-for-clunkers consumer policy in 2024 has prompted Beijing to expand the scheme in 2025, as part of broader efforts to boost domestic demand and transform China into a more consumption driven economy.

In January 2025, the National Development and Reform Commission (NDRC) and the Ministry of Finance (MOF) jointly released the “Notice on Expanding the Intensity and Scope of Policies for the Large-scale Upgrade of Capital Goods and Old-for-New Consumer Goods” (关于2025年加力扩围实施大规模设备更新和消费品以旧换新政策的通知), outlining plans for further expansion.

The expanded policy provides Chinese consumers with a maximum subsidy of 500 yuan (approx. USD$68.88) for purchases of several categories of digital products, including smartphones, tablet devices and smart watches.

Cash-for-clunkers at the core of China’s consumption drive

China first launched its cash-for-clunkers policy in 2024, to subsidise purchases of durable goods, such as vehicles and home appliances, by domestic consumers.

According to official figures, the policy directly drove retail sales worth over 1.3 trillion yuan (approx. USD$179 billion) last year.

Beijing hopes the policy can further boost lacklustre levels of consumption within China in 2025, as household balance sheets continue to recover from a multi-year property slump.

This will in turn lift domestic demand, and correct long-standing imbalances in the Chinese economy that have tilted it more heavily towards investment and exports.

The scheme first kicked off in March 2024, with the State Council’s release of the “Action Plan to Drive Large-scale Capital Goods Upgrades and Consumer Product Old-for-New Replacements” (推动大规模设备更新和消费品以旧换新行动方案).

In July, NDRC and MOF further upgraded the plan, with the joint issue of several follow up measures (关于加力支持大规模设备更新和消费品以旧换新的若干措施), and arrangements for the use of around 300 billion yuan in funds derived from Beijing’s issuance of ultra-long-term treasury bonds.

Official figures indicate that the scheme helped to drive a surge in purchases of vehicles and household goods to record highs in 2024.

In 2024, full-year passenger vehicle sales totalled 22.894 million units, for a YoY rise of 5.5%.

Sales of select household electronic goods and audio-visual equipment totalled 1.0307 trillion yuan, rising 12.3% compared to 2023 and breaching the trillion yuan threshold for the first time on record.

Beijing’s satisfaction with the scheme was readily apparent by the end of the year.

At the Central Economic Work Conference held in December, the Chinese government indicated that it would expand its issuance of ultra-long-term treasury bonds to subsidise the cash-for-clunkers program, amongst other stimulus policies slated for 2025.