Dependence on West discredits China's self-reliance myth

Global Watch | 2026-04-09

Despite Beijing's loud rhetoric about self-reliance and "national rejuvenation," China remains deeply dependent on the Western-led economic order.

Its factories still need foreign buyers, its financial system still leans heavily on the U.S. dollar, and its most ambitious industrial sectors still depend on access to global markets, capital, and technology.

That dependence is not a minor economic footnote. It may prove to be one of the clearest constraints on China's strategic freedom, especially in a serious geopolitical crisis over Taiwan.

For all the attention paid to China's military buildup and industrial scale, Beijing’s rise was not built outside the existing international system.

It was built inside it — through export access, participation in dollar-based finance, integration into global supply chains, and continued access to imported energy, raw materials, and strategic trade routes.

As CSIS analysts Gerard DiPippo and Jude Blanchette have argued, economic statecraft can impose "substantial economic costs" on China in a Taiwan crisis, even if sanctions alone may not guarantee deterrence.

Dollar dependence persists

China's financial architecture remains tied to the dollar in ways that are often underappreciated.

A Carnegie Endowment analysis found that China's foreign-exchange reserves remained between roughly $3.1 trillion and $3.29 trillion (as of late 2024), with about half — more than $1.9 trillion — still held in dollar assets.

Hong Kong's Exchange Fund adds another roughly $420 billion, which is overwhelmingly dollar-denominated.

Carnegie also notes that Chinese banks hold around $460 billion in dollar liabilities against about $410 billion in dollar assets, leaving China financially exposed even as it talks up de-dollarization.

Even Beijing's Cross-Border Interbank Payment System, often presented as an alternative to Western financial infrastructure, still depends significantly on SWIFT-linked messaging and the wider dollar-clearing ecosystem.

More broadly, China's growth model also depends on uninterrupted access to foreign commodities and global shipping networks.

Former Chinese central bank adviser Yu Yongding has warned that after the freezing of Russia's reserves in 2022, China's own dollar-heavy holdings could increasingly become "hostages."

That is not Western alarmism; it is a Chinese policy insider describing China's own vulnerability.

The dependence extends beyond reserves.

The U.S.-China Economic and Security Review Commission reported that China posted a record $992 billion global trade surplus in 2024 and warned that "China's economic system is under serious strain," with high debt and weakening fiscal capacity narrowing Beijing's policy room.

At the same time, according to S&P Global, U.S. private-equity investment in China fell from $140 billion in 2019 to just $650 million in the first half of 2024.

Export reliance curbs aggression

This does not mean China is weak, nor does it mean economic ties make conflict impossible. It means the costs of escalation are unusually high. Any major confrontation over Taiwan would be more than a military event.

It would also threaten export markets, access to finance, shipping routes, and investor confidence.

CSIS has warned that sanctions could impose major costs on China while also disrupting the global economy, and a Federal Reserve Bank of St. Louis review found that armed conflict over Taiwan would carry severe economic consequences well beyond the region.

China's domestic economy makes those risks harder to absorb.

The European Central Bank has argued that China's growth model is being squeezed by a prolonged property downturn, weak domestic demand, and shrinking external appetite for ever-larger Chinese surpluses.

Demographics add a longer-term drag: World Bank data shows China's working-age population has already peaked, while the dependency burden is rising.

Western officials have increasingly framed this as a structural problem, not simply a trade dispute.

Treasury Secretary Janet Yellen warned in 2024 that "China exporting its way to full employment is not acceptable to the rest of the world."

That line captured a broader reality: Beijing's model still relies heavily on external demand, even as Xi promises greater self-sufficiency.

For years, Western policymakers have focused primarily on China's strengths—its scale, industrial policy, and military modernization. Those strengths are real, but so is China's dependence on the very global system it criticizes.

Until Beijing can diversify meaningfully away from the dollar, reduce its reliance on Western demand, and build a credible alternative financial architecture, its rise will remain conditional.

China is powerful, but it is not yet economically autonomous, and that reality still limits its room for maneuver.