China's Game: Credit And Gold. Thursday's Edition
How China Is Winning And Will Win The World. Series 21 #4
America’s entry into establishing the U.S. dollar as the global reserve currency began with its role as a creditor nation, lending to Britain and France during World War I. The second step was accumulating large gold reserves.
China studied how America built the creditor relationships and gold reserves that made Bretton Woods and the dollar a global currency a reality. For the past 15 years, China has been executing both steps simultaneously.
Between 2013 and 2023, China extended over $1 trillion in infrastructure loans to more than 100 countries across Asia, Africa, Latin America, and into Europe through its Belt and Road Initiative. China has financed roads, railways, ports, power plants, and telecommunications networks. The logic is the same as the Americans and their WWI loans to Britain and France: countries that owe you money cannot easily oppose your foreign policy agenda. When a nation’s port, railway, or power grid is financed by China, opposing Beijing in international forums carries a real economic cost. That is the leverage, and China built it systematically across the developing world while Western analysts debated whether the Belt and Road was economically rational. Economically rational was never the point
China also held approximately $700 billion in US Treasury bonds. That is money China lent to the U.S. China is the creditor, and America is the debtor. That is billions dollars of leverage in Beijing’s favor.
China’s approach to developing itself as a creditor nation is fundamentally different from that of the U.S. The U.S. takes a universalist approach, applying rules and regulations equally across all agreements. China’s Belt and Road operates within a particularist culture in which agreements are adapted for relationships and circumstances. China didn’t propose a single multilateral framework and invite countries to join. It negotiated individual deals, tailored to each country’s specific infrastructure needs and political situation, building a web of bilateral dependencies rather than a rules-based system. America built Bretton Woods on universalism. China is building its creditor network on particularism, and particularism is the cultural perspective of most nations. America’s universal rules were forced on most nations.
China’s gold accumulation is a parallel story. Since 2009, the People’s Bank of China has added of tons of gold to its official reserves annually. Conservative estimates place China’s holdings above 2,000 tons. Many analysts believe the real figure is significantly higher, between 5,000 and 6,000 tons. For comparison, the U.S. holds about 8,000 tons.
The reason China needs gold to establish a reserve currency is straightforward. Nations need a reason to trust the yuan's value. Gold provides that trust. A currency backed by substantial gold reserves holds its value because it’s backed by gold. America held 70% of global gold reserves when it proposed the dollar as the world's reserve currency at Bretton Woods. That was the proof of the dollar's value and strength. China is building the same proof.
Neither Belt and Road lending nor gold accumulation produces short-term returns. And this is where China’s long-term cultural perspective gives it the advantage. China sees the outcome as more important than the timeline. And this fits with Hornby’s South archetype: tangible accumulation, physical assets, observable relationships, concrete leverage. Gold in vaults, loans on the books, ports built by Chinese financing.
Friday’s Edition examines the third step, the one that is harder to see and further along than most Western analysts recognize: the alternative financial infrastructure China has been building.
Sidebar: The Sri Lanka Lesson
In 2017, Sri Lanka handed China a 99-year lease on the Hambantota Port after failing to service its Chinese debt. Western commentary labeled this “debt trap diplomacy.” It is leverage operating exactly as designed: a creditor relationship converting into strategic access when the debtor could not pay. America used the same mechanism after WWI, converting Britain’s debt dependence into diplomatic concessions and market access throughout the 1920s and 1930s. The mechanism is not new. China understands history.
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