China has entered a structural economic slowdown that will profoundly impact its role in the global economy. This report presents three scenarios for China’s economic development and external financial position through 2030 and analyzes the implications for China’s financial statecraft capacity and preferences.
China has entered a structural economic slowdown that will profoundly impact its role in the global economy. This report presents three scenarios for China’s economic development and external financial position through 2030 and analyzes the implications for China’s financial statecraft capacity and preferences.
1. China’s international financial integration is likely to stagnate or decline further. Since 2010, China’s external assets and liabilities have grown more slowly than its domestic economy, reducing its relative exposure to international finance. Absent deep structural reforms, capital controls and regulatory rigidities will continue to constrain China’s cross-border financial integration.
2. Despite slower external financial integration, China’s financial statecraft capacity will expand. Slower domestic growth and external financial integration will lower China’s “pull” as destination for global capital. However, China will remain among the top ten economies in terms of external financial assets and one of the largest global creditors—far surpassing any other emerging market and autocratic nation. Beijing will have significant resources to project influence through lending, aid, infrastructure finance, and targeted foreign direct investment.
3. The composition of China’s external assets will move towards FDI and portfolio investment. Under all scenarios, China’s outbound financial assets will continue to grow, but their composition will evolve. Foreign direct investment (FDI) will remain dominant through 2030 under all scenarios as Chinese companies are forced to accelerate global expansion. Portfolio investment has already grown significantly in the past decade and could rise substantially if successful domestic reforms allow Beijing to further liberalize outbound investment controls.
4. State control will remain a defining feature of China’s external finance.
About three quarters of China’s current external financial assets are directly or indirectly controlled by sovereign or state-linked entities such as the central bank, policy banks, and state-owned enterprises. Even under reform, Beijing will still control two thirds of external financial assets directly and retain strong levers to influence the remainder, making China an outlier when it comes to government control over external financial assets.
5. China’s efforts to diversify away from advanced economies face structural limits.
Although Beijing promotes South–South financial ties and BRI lending, China’s exposure to advanced markets—especially the United States—remains deep. Much of the apparent diversification simply reflects routing through offshore centers like Hong Kong or the Cayman Islands. The increase of outbound FDI and portfolio investments under the reform scenario could further increase China’s investments in the deep and liquid financial markets of high-income economies in North America, Europe and Asia.
6. Transparency is poor and may deteriorate further. China’s balance of payments and international investment position (IIP) data contain inconsistencies, reflecting the widespread use of offshore structures by households and firms as well as political manipulation. These opaque “grey capital” pools obscure true ownership, complicate global risk assessments, and heighten concerns about illicit financial activity.
China’s financial globalization may have plateaued, but its ability to mobilize large pools of state-controlled capital abroad—through policy banks, sovereign funds, and state-owned enterprises—will continue to grow. US policymakers should focus on targeted, sector-specific measures to counter areas where Chinese financial activity challenges US economic, security, and governance interests, while maintaining space for pragmatic cooperation if China’s trajectory shifts toward reform and openness.
1. Right-size the China challenge. China is unlikely to become a global financial superpower, but it will remain the largest non-democratic participant in global finance and a leading creditor to developing economies. US strategy should avoid alarmism while recognizing that China’s state-driven model grants Beijing unique geopolitical leverage through lending, investment, and other channels.
2. Promote transparency. The US should lead multilateral efforts—through the IMF, G20, and Financial Stability Board—to improve the quality, comparability, and disclosure of China’s balance-of-payments and IIP data. These efforts could also include private initiatives to track Chinese offshore holdings and “grey capital” flows through financial hubs such as Hong Kong and Singapore. Greater transparency is critical to identifying systemic risk, illicit activity, and coercive financial practices.
3. Expand competitive financing tools. The US should strengthen US and allied development finance mechanisms—including the Development Finance Corporation, EXIM Bank, and G7 Partnership for Global Infrastructure and Investment—to provide credible, high-standard alternatives to Chinese lending. Additional components include anti-coercion frameworks that protect developing countries from financial pressure and an expansion of private capital mobilization for strategic infrastructure, climate, and digital projects.
4. Improve defensive policies. The US should continue to upgrade US and allied nation toolkits for financial resilience and investment security. This includes refining sanctions and export controls to punish Chinese entities investing in adversarial nations, tightening outbound investment reviews for sensitive technologies, and enhancing monitoring of Chinese state-linked funds and intermediaries active in strategic sectors such as semiconductors, AI, and critical minerals. The US should also contemplate additional policies and frameworks that would help level the playing field for US and other international firms to compete with emerging Chinese multinational corporations in third markets.
5. Explore opportunities for engagement and collaboration. Even amid strategic competition, selective cooperation with China can serve shared global interests. The US should pursue targeted engagement on climate finance, especially around green infrastructure and transition funding, coordinate on sovereign debt restructuring in the Global South, and improve dialogue on global financial stability to manage cross-border contagion risks. Constructive engagement in these domains can reduce friction and preserve US influence in shaping international norms.
This report presents three scenarios for China’s economic development and external financial position through 2030 and analyzes the implications for China’s financial statecraft capacity and preferences.
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