The People’s Republic of China has amassed an incredible amount of financial power. That financial power could allow the People’s Republic to dominate the globe even though China is not the world’s largest economy.
For example, the world’s four largest banks are in China. Statista estimates the four largest banks in December 2022 were:
1. The Industrial & Commercial Bank of China Ltd with $5.47 trillion in assets.
2. The China Construction Bank Corporation with $5.02 trillion in assets.
3. The Agricultural Bank of China with $4.92 trillion in assets.
4. The Bank of China with $4.19 trillion in assets.*
Hence, four Chinese banks have assets of $19.6 trillion. This exceeds China’s 2022 Gross Domestic Product of $18.1 trillion.* In contrast, the US Gross Domestic Product (GDP) was $26.486 trillion in the first quarter of 2023.
Moreover, both banks with assets over $5 trillion and all the banks with more than $4 trillion in assets are Chinese. In comparison, the two largest US banks Citibank (C), JPMorgan Chase (JPM) and Bank of America (BAC) had combined assets of $9.14 trillion. Statista estimates JPMorgan had assets of $3.67 trillion, Bank of America had assets of $3.05 trillion, and Citigroup had assets of $2.42 trillion in 2022.*
If this trend continues, we could see a Chinese bank with greater assets than America’s three biggest monster banks soon.
China can Dominate the World’s Banking System
Therefore, Chinese banks, which are at the mercy of the Communist Party, can dominate the world’s banking system.
Notably, Chinese leaders and businesses can ignore US and other sanctions because of that power. For example, Chinese customers can buy up unlimited amounts of Russian natural resources with the credit those banks provide. Trade between Russia and China grew by 40.7% between January 2022 and January 2023, CNN estimates.
Hence, the Chinese are financing Russia’s war in the Ukraine. In exchange, the Kremlin has turned Russia’s Far East into what the Centre for Defence and Security calls “Beijing’s Raw Material Colony.”*
Chinese financial power is besting American and Russian military power. Putin needs Chinese money to finance his war. Hence, the Russian president sells his nation to Chinese companies and banks.
Debt Imperialism and Creditor Imperialism
Frighteningly, Russia is only the latest victim of what the Center for European Analysis (CEPA) calls “China’s Debt Imperialism*” and “Creditor Imperialism.”*
To explain, Chinese officials use huge loans to get power over poor countries. Governments take out the loans to pay for politicians’ pet projects. Then when the government cannot repay the debt. Chinese banks gain control of the country’s economy.
Consequently, governments have to sell natural resources to Chinese companies at low prices to get cash to pay the loans. Chinese companies can make enormous amounts of money by selling products from those natural resources in the United States and Europe.
Countries with no natural resources face higher prices. For example, the government of Djibouti has to host the People’s Liberation Army Navy’s first overseas base in exchange for debt reduction.
Are Chinese Banks too Big to Fail?
Frighteningly, the four biggest Chinese banks are larger than the “too-big-to-fail” institutions that scare Americans to death.
Moreover, much of the world, for example Africa and Russia, is now totally dependent on the Chinese monster banks. Therefore, a collapse of one of those institutions could bring down the economies of many countries.
The concentration of financial power frightens me because it leaves other nations, including the United States, dependent on those monster banks. For example, many US retailers stock products made by Chinese factories that depend on credit from those banks. What happens if those Chinese factories cannot meet payroll or pay suppliers because of a credit crunch?
Finally, the sheer size of those banks could allow the People’s Bank of China (PBOC) and the Communist Party to force their will and regulations on the world’s banking system. For example, the PBOC could force other companies to accept its Digital Yuan (e-CNY) Central Bank Digital Currency (CBDC).
Notably, the PBOC is encouraging countries such as Russia, Argentina, and Brazil to accept yuan payment for natural resources. That’s a great deal for Chinese companies because they can buy the resources with cheap yuan. Then sell the finished goods for dollars or Euros.
Other countries could have to follow Chinese banking laws and regulations and accept Chinese banking products. Many nations, especially smaller countries, will have no choice but to let Chinese bankers run their financial systems.
The paranoid will warn that the PBOC could become the global central bank and the yuan the world’s reserve currency. If they take yuan imperialism to its logical conclusion.
An Empire of Debt
That sounds like imperialism to me. It is also history repeating itself. The British Empire became the largest and most powerful empire in history because the City of London controlled the world’s banking system. Now, the People’s Republic of China could have similar economic power.
Notably, in the 19th century, the Royal Navy and Her Majesty’s Army often forced governments to pay British debts. For example, the British invaded Mexico in 1862* and Egypt in 1882 to collect debts. Significantly, British forces stayed in Egypt until the 1950s.*
I have to wonder if the People’s Liberation Army (PLA) and the PLAN will become the world’s debt collectors. For instance, invading countries to protect Chinese banks’ investments, or forcing governments to pay debt at gunpoint.
The world needs to recognize Chinese financial power and learn to deal with it. If we do not recognize Chinese financial power. Countries like the United States could find themselves in dire straights.