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Lizzi C. Lee

Donald Trump’s return to the White House revives a playbook China knows all too well: tariffs, trade restrictions and relentless threats to cut China off from the US financial and tech ecosystem. Beijing’s natural instinct might be to hunker down, double down on self-sufficiency and ride out the storm. However, that reflex risks deepening its vulnerabilities, not solving them.
China’s domestic economy is not in great shape. Policymakers are juggling tools, but each comes with heavy trade-offs. Retaliation against US policies risks a spiral of escalation. Fiscal options are constrained by ballooning local government debt. Monetary easing could spur capital outflows, especially with the US Federal Reserve’s pivoting monetary stance.
Amid these challenges, reforming China’s underperforming financial markets stands out as a high-reward, low-risk strategy. Paradoxically, the moment of crisis might accentuate the necessity of this choice.
In fact, this is the lowest-hanging fruit. China’s capital markets remain riddled with inefficiencies. Low returns, weak corporate governance and lacklustre performance have eroded investor confidence and left savers with few appealing options. The Shanghai Composite Index has been stagnant for years. At a time when robust domestic demand is needed to offset external pressures, these shortcomings are holding back China’s economy.
The consequences are glaring. Chinese households, already squeezed by low deposit rates, save at some of the highest rates in the world. Much of their savings sit in low-yield assets, suppressing consumption and undermining Beijing’s goal of driving growth through domestic demand. Reforming the capital market could change this, offering households better returns and unlocking spending to fuel broader economic growth.
The stakes are even higher when it comes to long-term challenges. With an ageing population and a rising dependency ratio, the pressure on China’s pension funds will only increase. Robust financial returns are essential to funding these systems sustainably.


Beijing’s nationwide private pension initiative is a step forward, but to deliver real results, it must go further by drawing lessons from mature markets and diversifying investment instruments and adopting strategies that deliver higher returns. Without vibrant capital markets, these reforms risk running aground.
The case for reform doesn’t stop at demographics. Hi-tech innovation – the backbone of President Xi Jinping’s economic strategy – is capital-intensive and high-risk. It requires deep pools of funding that state-backed loans alone cannot provide. Efficient capital markets are critical to channelling resources into these high-stakes sectors.
China has shown it can adapt under pressure. When Trump’s tariffs hit in 2018, it slashed its reliance on the United States and ramped up trade with the Global South. Chinese firms seized global market share in advanced manufacturing industries such as robotics and electric vehicles.
China already has proof of concept. Programmes such as Stock Connect have demonstrated how financial integration can boost liquidity, increase valuations and funnel global capital into Chinese markets, but these initiatives are just the beginning. A more transparent, accessible and predictable financial system would amplify these benefits.

For starters, further reform of listing mechanisms could deliver immediate benefits. CATL, the world’s largest battery maker and a hallmark of China’s innovative prowess, exemplifies this. Despite its significant cash reserves, CATL faces mounting foreign currency needs to fund ambitious overseas expansions, including battery factories in Spain and Hungary. By raising funding through a Hong Kong IPO, the company can tap into international capital markets to address its currency requirements.
CATL’s decision also underscores the untapped opportunities in China’s capital markets. A more streamlined dual listing mechanism could provide a clearer pathway for globally competitive Chinese firms to access foreign investment and expertise. Moreover, it could help revitalise Hong Kong’s IPO market, which has struggled under geopolitical pressures and a sluggish post-pandemic economic recovery.
Recent regulatory adjustments by the Hong Kong exchange and Beijing’s expressed support for such listings, including coordination to fast-track approvals, highlight the growing recognition of the strategic value of reforming these capital market mechanisms. Proposed adjustments include lowering listing thresholds for firms by reducing the minimum public float and required market cap.
A better-functioning capital market also tackles a major bottleneck: scaling early-stage innovation into commercially viable industries. Global venture capital and private equity are crucial for identifying and funding the disruptive firms of tomorrow. Meanwhile, mature companies need access to deeper markets to sustain R&D investment and cement their competitive positioning.




Beyond economics, there is a geopolitical advantage. Opening up China’s capital markets embeds its economy more deeply into global financial networks, making decoupling costly for everyone. Foreign investors with significant stakes in Chinese assets become allies in stability, raising the stakes for any push to isolate China. Trump’s tariffs exposed how interconnected economies already are. Further integration through financial openness would only strengthen these ties, making unilateral pressures harder to sustain.
Beijing’s recent overtures to foreign investors, including high-profile summits in Hong Kong, suggest it recognises the stakes, but words won’t be enough. Real reform – stronger legal protections, enforceable intellectual property rules and regulatory predictability – is essential for attracting serious, long-term investment.
Xi has long emphasised the importance of security, but true security is not built by closing doors; it’s achieved by building strength. Trump’s return presents a challenge, but it also offers a moment of clarity. For all the talk of self-reliance, China’s future depends on its ability to harness global capital and innovation to its advantage.
If Beijing seizes this opportunity, it could transform a familiar cycle of confrontation into a foundation for long-term security and leadership. The question is not whether China can adapt but whether it will choose to rise above this moment or let it define the limits of its ambition.


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If Beijing seizes this chance, it could transform a familiar cycle of confrontation into a foundation for long-term security and leadership


If Beijing seizes this chance, it could transform a familiar cycle of confrontation into a foundation for long-term security and leadership.


US-China decoupling

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Why Trump’s return opens door for China to reform capital markets

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}If Beijing seizes this chance, it could transform a familiar cycle of confrontation into a foundation for long-term security and leadership

If Beijing seizes this chance, it could transform a familiar cycle of confrontation into a foundation for long-term security and leadership