What's happened
China has advanced its economic management, focusing on stabilising local government debt, promoting yuan internationalisation, and managing currency stability. Meanwhile, US debt continues to grow, raising concerns about fiscal sustainability. These contrasting strategies highlight differing economic risks and geopolitical ambitions as of August 2025.
What's behind the headline?
China's Evolving Economic Toolkit
China has shifted from reliance on foreign reserves to a more diversified approach in managing its currency, reducing volatility and stabilising reserves. The recent proposal for a state-backed agency to support property developers aims to address the sector’s debt crisis, which remains a significant financial risk. Meanwhile, China's push to internationalise the yuan through expanding trade settlement and cross-border financing reflects a strategic move to challenge US dollar dominance.
US Debt Risks and Global Implications
The US debt has tripled over two decades, reaching around $37 trillion, with interest payments exceeding $1 trillion annually. Experts like Ray Dalio warn of a 'debt spiral' that could trigger a financial crisis, as political gridlock hampers necessary fiscal reforms. The US’s reliance on foreign investors and the potential for rising interest rates pose systemic risks, contrasting with China's domestically held debt, which offers more control.
Geopolitical and Economic Divergence
While China seeks to reshape global financial governance and reduce reliance on US-dominated systems, the US faces internal fiscal challenges that threaten its economic stability. The yuan’s internationalisation index has increased, signaling Beijing’s intent to become a key rule-maker in global finance. These developments suggest a shifting balance in economic power, with China positioning itself as a more influential global player.
Future Outlook
China’s focus on stabilising its property sector and expanding yuan use will likely continue, supported by reforms and new financial institutions. Conversely, US debt concerns will persist, with potential for increased political intervention and fiscal reforms. The global economy may experience a period of transition, with China gaining more influence in international financial systems and the US facing heightened risks from its debt trajectory.
What the papers say
The South China Morning Post provides a detailed overview of China’s efforts to manage currency stability and local government debt, highlighting reforms like debt swaps and proposals for a state-backed property agency. It also emphasizes China’s strategic push to internationalise the yuan, aligning with its broader geopolitical ambitions.
In contrast, the articles from Business Insider UK and the earlier South China Morning Post piece focus on the US debt crisis, with Ray Dalio warning of a 'debt spiral' and the US’s growing fiscal risks. They underscore the political gridlock hampering necessary reforms and the potential for a financial crisis, contrasting China’s more controlled approach.
While the Chinese articles detail structural reforms and strategic initiatives, the US-focused coverage emphasizes the urgency of fiscal reform and the risks of unchecked debt accumulation. Both narratives highlight the diverging paths of these two major economies, with China actively reshaping its financial system and the US grappling with its debt sustainability issues.
How we got here
China has been navigating a prolonged property sector downturn following Evergrande’s 2021 default, alongside efforts to control local government debt through debt swaps and restructuring. Simultaneously, Beijing has been pushing to elevate the yuan’s role in global finance, amid rising geopolitical tensions and US debt concerns. The US, meanwhile, faces a rapidly increasing debt burden, with warnings from financial experts about potential economic instability.
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Raymond Thomas Dalio is an American billionaire investor and hedge fund manager, who has served as co-chief investment officer of the world's largest hedge fund, Bridgewater Associates, since 1985. He founded Bridgewater in 1975 in New York.