China’s Financial Strategy: Power, Sovereignty and the Limits of Caution

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The essay below, by senior establishment economist Xia Bin (夏斌), is an unusually candid, systematic articulation of a broader Chinese instinct about finance—that it is inherently unstable, politically consequential, and useful only if bound by the needs of the real economy. It is introduced by Alicia García-Herrero, who makes a sharp case for the opposing view from a liberal-financial perspective. Alicia is the Chief Economist for Asia-Pacific at Natixis. She is also a Senior Fellow at the European think tank Bruegel, a non-resident Research Fellow at the National University of Singapore’s East Asian Institute, and an Adjunct Professor at the Hong Kong University of Science and Technology. In addition, she serves on the Advisory Committee for Economic Affairs of the Spanish Government and advises the Hong Kong Institute for Monetary and Financial Research (HKIMR). We are very grateful to her for her generous contribution to this newsletter. — JacobXia Bin’s call for “full domestic marketisation paired with limited cross-border globalisation” rightly identifies China’s structural vulnerabilities—currency mismatch, RMB non-convertibility, and exposure to dollar hegemony. Yet his analysis rests on a flawed premise: that finance (“the xū”) must remain subordinate to the real economy (“the root”), serving only as a cautious tool to avoid external shocks. This view underestimates finance’s autonomous strategic value. A developed financial system is not just supportive infrastructure; it is a core instrument of national power, sovereignty, and self-reliance—especially by breaking …