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this post was submitted on 27 Nov 2025
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I agree that debt trap diplomacy is bullshit. But there is special irony with regards to the U.S, all the Dollars that Chinese banks and companies lent to American private sector came from the U.S. itself. Whether by export surplus, remittances, capital flows etc. If the Chinese companies can create employment and output instead of lending to parasitic and capital intensive sectors, then it's still a win for the U.S.
I mean it only makes sense, U.S. Dollars are easiest to recycle in the U.S. Most of China's Dollars are held in financial assets, putting some of it into real assets is good for the U.S. It's unfortunate since third world countries could use the Dollars better. Most of them are stuck in foreign currency debt with currency markets that aren't very deep, China should offer them a window to exchange their local currencies for Yuan/Dollars up to a limit. Such a shame this is considered as giving 'free money', there is a hierarchy where China is unwilling to accumulate third world currencies but is perfectly fine with accumulating Dollars, Euros etc. The claim that it's because first world currencies are more liquid or because of political instability is ridiculous since first world currencies in electronic entries in books don't do much either any way.
There is no surprise at all.
Wang Jian (王建) from China Society of Macroeconomic Research, who proposed the Great External Circulation strategy back in 1987 that was officially adopted by the central government, talked about this in an interview in the early 2000s:
In September 2020, months after China proposed the Dual Circulation Strategy (export balanced by domestic consumption), Wang Jian reasserted the importance of dollar hegemony in an interview:
Once you understand this, you will understand that China cannot and will not give up the dollar system, especially its hegemonic status. The status quo greatly benefited the Chinese economy and there is no reason to give up even when the US itself is threatening to end the arrangement, because China still has plenty of cards to play (e.g. rare earth export). The US will find itself unable to decouple from China.
This is also why when the US confiscation of Russia’s $300 billion foreign reserve at the start of the Russia-Ukraine war, and the Fed rate hike that caused dollar liquidity crisis in many Global South countries and spurred strong interest in many to leave the dollar regime, China has been the one that was and still is the most reluctant to abandon the US dollar. If China doesn’t want to, then nobody else can do anything about it. The Biden administration correctly gambled that China would not threaten the dollar hegemony during the rate hike in 2022.
So what's the contingency for America shooting itself in the foot? Are they planning some kind of managed collapse? How can they possibly keep themselves attached to what is obviously a sinking ship?