On March 6, the Financial Times reported that China had overtaken the European Union as the world’s largest banking center, making the Far Eastern nation the overall top financial behemoth in the global economy.
New analysis by the Financial Times shows China’s banking system has overtaken the eurozone to become the world’s biggest by assets. The status reflects the country’s increasing global influence and its reliance on growth driven by debt.
According to FT, China’s GDP surpassed the EU’s in 2011 at market exchange rates, but its banking system did not take over the top spot until the end of last year.
That lag was fuelled by an extraordinary increase in bank lending since 2008 when the Chinese government unleashed aggressive monetary and fiscal stimulus to soften the impact of the global crisis.
Statistics show Chinese bank assets hit $33 trillion at the end of 2016, versus $31 trillion for the eurozone. US assets stood at $16 trillion and the Japanese at $7 trillion.
Source: Sputnik News
For awhile now, China has been the largest individual banking state, well surpassing the U.S. when it comes to lending, monetary creation, and bi-lateral trade. However with the European Union it is quite different as they tend to express themselves in the power of their coalition rather than through the strength of individual member states. And thus over the past eight years the decline of the EU’s financial system has gone almost in parallel with the rise in China’s expansions such as their Silk Road initiative, the Shanghai Cooperation Organization, and the Asean group.
Additionally, China has also used their growing monetary power to create new infrastructures meant to compete with, if not supplant Western control over the global financial system. Beginning with the creation of a partnership with Russia in 2014 to allow the sale of oil to occur using both the Yuan and the Ruble that put a major crack in the long-standing petrodollar system, and followed by the creation of the AIIB, BRICS Bank, and Shanghai Gold Exchange that almost instantaneously gave the rest of the world options to move away from dollar hegemoney, the Chinese are setting themselves up as the new kids on the block who have enough muscle to stand toe to toe with the bully who has for decades been able to take everyone elses lunch money.
Yet despite all the success that China has achived in the Eastern hemisphere, the primary fruit left to harvest is that of Europe. For if China could coax the member states of the EU, or the bureaucracy of the Union itself to switch sides and move into China’s camp voluntarily, then it would isolate the United States and culminate in a bloodless change in the balance of power, setting the stage for the 21st century to become a Chinese century.
And interestingly enough, this may be happening sooner than analysts think.
The head of the organization charged with safeguarding financial stability in the eurozone said he does not rule out issuing Chinese yuan-denominated bonds to fund the rescue of European nations and institutions.
“[Issuing European Stability Mechanism bonds in yuan] is possible,” Klaus Regling, managing director of the ESM, said in a recent interview with the Nikkei Asian Review. He said the institution was preparing to issue dollar-denominated bonds in the fourth quarter of this year — the ESM’s first non-euro bond issuance — but added that other currencies remained an option.
“We are legally allowed to issue in all currencies,” he said. “As a young institution, it is a big step to do our first non-euro issue … and it seems to make sense from the market side to start with the U.S. dollar. But it is entirely possible that we move into other currencies that are attractive from the market side.”
The days of the dollar remaining the sole global reserve currency are numbered, and it is only a matter of time before the Fed and America’s widening trade deficit bring about the absolute destruction of their currency. And since Europe is quickly coming around to recognizing that their future may lie Eastward rather than with their long-standing ally in the West, what takes place politically and economically over the next nine months could see this new paradigm take shape faster than anyone could imagine.