Preface: This essay on China’s emerging socialist financial system builds directly on the structural dynamics framework developed in my books Thermoeconomics in a Time of Monsters (2026), China, Trust and Digital Supply Chains (2023) and the recent Pasinetti-inspired review of China’s economic model. It examines how finance is being subordinated to the real economy amid the “new/old economy crossover,” shortening capital circuits, mobilising dormant savings into higher-velocity productive flows, and facilitating demand-led re-proportioning across hyper-integrated subsystems. By anchoring finance to material-energetic realities and structural change — rather than fictitious self-expansion — China advances high-quality accumulation, risk mitigation and sustained reproduction suited to 21st-century thermodynamic and geopolitical imperatives.
In recent years, China has been undergoing a profound structural transformation in its economy, one that is reshaping not only production and consumption patterns but also the role and architecture of its financial system. This shift marks the entrance of what can be described as a strong socialist finance system — one where finance is deliberately subordinated to the needs of the real economy, productive accumulation and high-quality development, rather than permitted to pursue self-referential expansion. Central to understanding this evolution are the analyses of prominent Chinese economists like Zhang Yu and policy statements from PBOC Governor Pan Gongsheng, which diagnose a “new/old economy crossover” and operationalise financial modernisation accordingly. These developments align with and are amplified by deeper theoretical framings drawn from classical political economy, particularly Marx’s analysis of capital circuits in Capital Volume 2, Pasinetti’s structural dynamics, and practical implementations detailed in my books China, Trust and Digital Supply Chains (2023) and Thermoeconomics in a Time of Monsters (2026).
This essay synthesises these elements to outline the emerging contours of such a system. It contrasts this approach with the financialised logic of capitalism, which tends toward over-accumulation of fictitious capital and periodic Minsky-style crises. China’s strategy seeks to ensure finance remains tethered to the metabolic capabilities of the energetic and material substrate of the real economy thereby preventing detachment into speculative shells while mobilising dormant savings into productive, higher-velocity circuits.
Let’s begin with Zhang Yu’s June 2026 analysis, framed around themes like “New Boat Has Appeared, Layered Flows of ‘Water’” (or related mid-year strategy remarks such as “Old Ruler Cannot Measure New Boat”), which captures the essence of China’s economic re-proportioning. By 2025, “new economy” sectors — midstream manufacturing, production-oriented services, and exports of intermediate and capital goods — had surpassed traditional “old economy” pillars (real estate, infrastructure and upstream materials) across key metrics: GDP contribution, fixed asset investment, exports and employment. Demand is increasingly export-led and supply-side driven, rather than reliant on domestic terminal consumption in property or heavy infrastructure.
This crossover fundamentally alters liquidity and credit dynamics. In the old paradigm, recovery was pro-cyclical: real estate and infrastructure booms drove credit demand, deposit creation, reserve requirements, and interbank tightening. In the new paradigm, this link weakens. Export-driven profits decouple from domestic credit; credit increasingly supports productive capex and working capital in manufacturing chains rather than speculative terminal demand. Non-bank liquidity exhibits “inflow abundant, outflow scarce” characteristics: that is, household savings, no longer voraciously absorbed by property, pool in financial assets, while subdued domestic financing appetite limits aggressive transmission to leverage.
In sum, Zhang Yu argues that the old analytical framework — namely, monetary policy → interbank liquidity → capital market liquidity → entity credit cycle — has broken down due to the new/old economy crossover. By 2025, midstream manufacturing and producer services (new economy) surpassed real estate/upstream materials (old economy) in GDP share, fixed investment, exports (shift to intermediates/capital goods), and employment. Demand is now more export-driven.
These observations directly point to the end of credit-fuelled growth in the old sense. Now, prior surpluses (manifest as either household savings or enterprise profits) are anticipated to be recycled into working capital for supply chains and fixed capital formation in higher-productivity areas, rather than through the mechanisms of neoclassical consumption rebalancing, much to the chagrin of many western observers. This rotation reduces risks of private debt overhangs while sustaining income growth via productivity-enhancing investment.
Key shifts in liquidity / credit dynamics according to Zhang are:
Interbank liquidity: In the old paradigm, economic recovery was pro-cyclical and liquidity-tightening. Real estate / infrastructure drove rapid credit demand → deposit creation → higher required reserves → squeezed excess reserves → tighter interbank rates (R007). In the new paradigm, this link weakens. Banks are less elastic beneficiaries; policy uses more structural tools; export-driven net forex settlements provide passive base money. The result is that economic repair no longer automatically tightens liquidity as before.
Capital market liquidity (non-bank): Old model: “Inflow scarce, outflow abundant” — household savings heavily absorbed by property; non-banks channeled funds aggressively to enterprises via shadow banking/direct financing. New model: “Inflow abundant, outflow scarce” — weak property expectations mean household deposit “migration” to financial assets; subdued domestic demand and tighter regulations (asset management new rules) reduce enterprise direct financing appetite. Funds pool in non-banks without strong transmission to real economy leverage, a point recognised in a recent piece in Qiushi by Ding Zhijie, a Professor and Director of the Research Institute of the People’s Bank of China.
Entity credit cycle: Old model: Medium/long-term loans closely tracked corporate profits via terminal demand (property/infra). New model: Divergence — credit expansion more supply-side (productive capex in manufacturing); domestic mid/long-term loans slowed, yet non-financial corporate profits rose (export/productivity driven). When demand is overseas-led, foreign (US/EU/Japan) credit/financing better explains Chinese export-chain profits than domestic social financing.
This boils down to the following main observations on the back of Zhang’s analysis:
Real Estate Drag and Savings Behaviour: Property’s role has shrunk significantly. Household savings rates remain high, but the composition is shifting — more toward financial assets and deposits, while real estate absorbs less.
Investment Reorientation: Manufacturing/equipment investment has shown resilience or policy support (e.g., upgrades, advanced tech), offsetting property deleveraging. Fixed investment overall faces headwinds, but capex in strategic sectors (AI, high-tech manufacturing, exports) is a bright spot. Corporate profits have decoupled positively from traditional credit in some periods due to export strength.
Working Capital and Supply Chains: In export/manufacturing-heavy phases, firms need more operational liquidity for inventories, receivables and global supply chain integration. This can absorb savings without broad consumption surge. Mainstream analysts highlight “involution” risks (principally by way of low margins) but also productivity gains from capex.
Pan Gongsheng’s June 17, 2026, keynote at the Lujiazui Forum, “The Evolution of China’s Financial Structure and the Modernisation of Financial Markets,” translates Zhang’s aligned diagnosis into concrete policy. Pan documents a historic shift in financing: in 2025 social financing increments, loans fell to ~45% (from over 80% historically), with bonds and stocks reaching 47%. Indirect financing’s share in total stock financing dropped from near 100% in the 1990s to about two-thirds. Sectorally, real estate and infrastructure loans plummeted from over 60% to ~10% of new loans, while support for the “Five Articles” (tech, green, etc.) rose to over 70%. Sci-tech bonds reached ~3 trillion RMB, and tech SMEs saw sustained ~20% loan growth.
Pan emphasises that new industries — R&D-intensive, light-asset and relatively high-uncertainty — are less dependent on traditional bank debt per unit of growth. Legacy real estate and LGFV loans are contracting, necessitating “stock revitalisation” equivalent in impact to new lending. “Loans decelerating with quality improvement” is the new normal, given the massive existing stock (>450T RMB social financing, >350T M2, with 280T loans). Policy announcements — narrowing the interest rate corridor, creating offshore RMB facilities, Shanghai FTZ pilots, non-bank liquidity tools, and data repositories — aim to enhance transmission, market deepening, and resilience without reverting to quantity-driven stimulus.
This operationalises Xi Jinping’s vision of a modern socialist financial system, where finance serves the real economy as its “lifeblood,” not an autonomous sphere prone to self-circulation and inflation.
On July 7, 2026, Pan Gongsheng announced a package of 11 measures in coordination with the Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC). These include raising the southbound Bond Connect annual quota from 500 billion to 800 billion yuan with expanded eligibility for repo transactions, Hong Kong dollar and RMB bonds, and Macao linkage; increasing the RMB Liquidity Facility for Hong Kong banks from 200 billion to 500 billion yuan with maturities up to three years; supporting 5-year offshore RMB treasury bond futures; and advancing Hong Kong’s gold ecosystem via a new central clearing system and Delivery Connect with the Shanghai Gold Exchange (SGE).
These measures appear technical, yet they exemplify Chinese socialist governmentality: the pragmatic repurposing of historical practices — “old wine in new bottles” — for contemporary ends. Techniques of managed interfaces, spatial clustering, and selective permeability, honed over centuries, now channel capital, assets and RMB flows while preserving steerability. Hong Kong functions as the premier special finance zone in this architecture.
Imperial China governed external interactions through delineated spaces and authorised counterparts. The tribute system ritualised trade under hierarchical oversight. The Canton System confined foreigners to a licensed port ecosystem. Treaty ports created under imperial duress clustered enclaves for controlled exchange. Post-1949, Hong Kong and Macau retained utility as interfaces. Reform-era SEZs (Shenzhen et al.) deliberately clustered foreign investment near overseas Chinese networks, experimenting with markets contained within administrative boundaries.
Parallel social technologies, such as household registration, were modernised from lineage-based tools into the hukou system. As Michael Dutton has documented in his book From Patriarchy to the People, these shifts turned traditional methods of tracking and allocation into instruments of socialist planning, enhancing visibility and control amid modernisation. Spatial clustering — concentrating activities in defined zones — amplifies such virtues: it makes movements legible (via licensing, permits, standards and compliance checks), enables economies of scale/scope, and fosters spillover learning effects through proximity and repeated interaction.
Spatial and institutional clustering provides clear governmental advantages. Concentrated zones simplify oversight: regulators can enforce rules, monitor compliance, and adjust parameters more efficiently than in diffuse systems. Licensing and permitting become targeted tools. Economies of scale emerge in infrastructure (e.g., clearing systems, vaults, and trading platforms), while scope economies arise from complementary activities (bonds + gold + derivatives). Spillover learning accelerates innovation — participants exchange knowledge, standards diffuse rapidly and ecosystems self-reinforce.
Hong Kong exemplifies this. As a compact, high-density financial cluster with deep international linkages, it concentrates expertise, infrastructure and capital flows. “One country, two systems” preserves its distinct regulatory space, enabling experimentation while linking it tightly to mainland “warehouses” (exchanges and physical markets). Connect schemes act as gated channels: visible, quota-managed, and infrastructure-mediated. Clustering here turns potential vulnerabilities (external shocks) into strengths such as network effects and rapid policy transmission.
The July 2026 package operationalises these principles. Bond Connect expansion enhances two-way flows, using repo to improve liquidity and collateral efficiency within the clustered Hong Kong market. The enlarged RMB Liquidity Facility supplies stable funding for regional real-economy needs, radiating offshore RMB use while remaining anchored in HKMA-PBOC coordination.
Gold initiatives highlight clustering’s power. The new central clearing system (HKPMCC, government-owned, with SGE board representation) fills a prior gap in Hong Kong’s OTC gold market, creating a unified, licensed, compliant hub. Delivery Connect enables seamless physical gold transfers between Hong Kong vaults and SGE systems, linking mainland physical depth with offshore financial agility. RMB gold futures considerations and the HAU benchmark further build pricing capacity within this clustered ecosystem. Tax incentives, storage expansion, and MPF investment flexibility amplify scale and scope.
These are deliberate and considered initiatives: clustering renders gold (as a safe-haven asset) governable and productive for RMB internationalisation amid de-dollarisation pressures and geopolitical tensions. PBOC’s increased FX reserve allocation to Hong Kong and support for a new FIC electronic trading platform extend the logic — visible infrastructure, standardised rules and learning spillovers.
Hong Kong’s post-1997 status under “one country, two systems” represents the apex of this zonal thinking in the financial domain. The city functions as a special finance zone: retaining its common law system, convertible currency (HKD), open capital account, and international connectivity, while politically integrated with the mainland. This hybrid enables it to act as an offshore RMB hub, handling over 70% of global offshore RMB payments and clearing. The “one currency, two markets” approach — onshore CNY with managed convertibility and offshore CNH with greater flexibility — creates a firewall that allows RMB internationalisation without full capital account liberalisation. Hong Kong’s >70% share of global offshore RMB payments reflects first-mover advantages, rule-of-law credibility and clustering benefits. Shanghai and others develop complementary roles, but Hong Kong’s unique interface status — international openness + sovereign backing — remains difficult to displace.
Connectivity schemes operationalise this logic. Stock Connect, Bond Connect, and Swap Connect function as digital-era treaty ports: controlled pipelines linking mainland exchanges and warehouses to Hong Kong’s international gateway. They permit two-way flows of capital and assets under quotas, eligibility rules and infrastructure oversight, ensuring Beijing retains steering capacity. The July 2026 measures extend this repertoire. Expanding Bond Connect’s southbound channel (with repo collateral, broader products and Macau linkage) enhances mainland investors’ access to Hong Kong’s bond market while injecting liquidity and diversity into Hong Kong’s fixed-income ecosystem. The RMB Liquidity Facility expansion provides stable, longer-term funding for real-economy uses across regions, directly supporting RMB adoption in trade and investment.
The gold initiatives are particularly illustrative. Hong Kong’s new central gold clearing and settlement system (trial operations launched July 7 via the government-owned Hong Kong Precious Metals Central Clearing Company, HKPMCC) addresses a prior gap in OTC clearing. Coupled with Delivery Connect to the SGE, it enables two-way physical gold transfers between Hong Kong vaults and mainland systems. Participants can deposit gold in Hong Kong for access to both OTC and on-exchange markets. RMB-denominated gold futures are under exploration, alongside a new HAU price benchmark. These steps position Hong Kong as an Asian gold trading and potential reserve hub, linking physical commodities (mainland strength) with financial innovation and international capital (Hong Kong’s edge). Gold, as a safe-haven asset amid geopolitical tensions and de-dollarisation discussions, becomes another vector for RMB pricing power.
The measures evolve Hong Kong from liquidity pool toward a global pricing and risk-management centre. They align with broader objectives: deepening connectivity, diversifying offerings, consolidating RMB hub status and protecting stability. This repurposing — historic zones for financial globalisation — supports national goals without full liberalisation.
Pan Gongsheng’s announcements emphasise four directions: deepening market connectivity, diversifying Hong Kong’s financial offerings, consolidating its offshore RMB hub status and safeguarding stability. PBOC support for regular central bank bill issuance in Hong Kong, expanded offshore RMB sovereign bonds, and a new FIC electronic trading platform further enriches the ecosystem. Foreign exchange reserves will continue increasing allocation to Hong Kong assets.
Such moves align with broader socialist governmentality: the state actively shapes markets through infrastructure, incentives and rules rather than withdrawing. Historical household registration provided granular control for mobilisation; modern financial zoning offers granular permeability for capital. Experiments in Hong Kong (new tenors, repo facilities and gold clearing) generate lessons for potential scaling or replication elsewhere (e.g., Shanghai’s growing offshore role), much like SEZs informed nationwide reforms. The approach mitigates risks — capital flight, volatility and loss of policy sovereignty — while harnessing global demand for RMB assets beyond trade settlement into investment, financing, pricing and reserves.
Critics may see over-concentration in China-linked businesses as a vulnerability for Hong Kong’s international status. However, the measures counter this by broadening offerings: gold as a non-RMB-specific safe haven, wealth management push, and diversified fixed-income products. The zonal model inherently supports complementarity — Hong Kong’s openness amplifies mainland scale without requiring uniform rules across jurisdictions. Multiple offshore centres (Hong Kong primary, others secondary) enhance resilience amid US dollar weaponisation concerns and geopolitical fragmentation.
Fully implemented, these policies should boost offshore RMB deposits and liquidity, attract international capital, and strengthen Hong Kong’s competitiveness. They evolve Hong Kong’s role from pure liquidity pool toward a global pricing centre for RMB-denominated assets, including commodities like gold. This matters for RMB internationalisation: deeper, more liquid offshore markets increase usage and confidence, supporting China’s economic diplomacy and diversification goals.
Key indicators to monitor include: growth in Bond Connect and gold trading volumes; expansion of offshore RMB deposits and cross-border payments; international listings and debt issuance in Hong Kong; asset under management inflows; and Hong Kong’s performance in global financial centre indices. Challenges remain — competition from Singapore, London, and Dubai; external rate environments; and geopolitical headwinds — but the adaptive toolkit provides flexibility. Further reforms might include additional derivatives, green finance innovations, talent policies, and tax incentives to sustain diversification.
The Pan Gongsheng announcements of July 2026 are best understood not as isolated financial tweaks but as the latest iteration of Chinese socialist governmentality to strengthen its financial system for domestic and international purposes. By repurposing historical practices of zoning and managed interfaces — tribute systems, special ports, household registration — into sophisticated financial infrastructure, Beijing navigates globalisation on its own terms. Hong Kong remains the irreplaceable offshore gateway: a governable space where mainland depth meets international breadth, physical assets link to financial markets, and controlled flows advance RMB internationalisation while preserving stability.
This “old wine for new purposes” logic — pragmatic, experimental and state-orchestrated — has powered China’s rise from SEZs to financial connectivity. In an era of multipolar monetary tensions, it positions Hong Kong as both beneficiary and instrument of broader strategy. As Michael Dutton’s scholarship reminds us, governance tools evolve, but the underlying repertoire of categorisation, permeability and direction endures. The result is a resilient hybrid: socialist in orientation, adaptive in method, and strategically attuned to the demands of the 21st century.
These macro shifts gain depth when viewed through Marx’s analysis in Capital Volume 2, particularly the circuits of capital (M-C-P-C’-M’) and the imperative to reduce turnover time. Marx detailed how longer circulation times tie up advanced capital in commodity or money forms, necessitating larger money-capital outlays to maintain continuity. Capitalists (or, in a socialist context, coordinated planning or market-exposed enterprises) seek to shorten production and circulation periods to accelerate surplus-value realisation, free capital for expanded reproduction, and raise the annual rate of accumulation. My own case study of a beef export supply chain shows the extent to which shortening realisation circuit times can dramatically reduce working capital demands, by up to 18% for a defined time period. This is not small change.
In China’s old circuits, real estate and heavy infrastructure involved long gestation, illiquid assets and slow realisation — absorbing funds into low-velocity shells and amplifying debt. New circuits — high-tech manufacturing, export chains, and Engel’s Law-driven services (health, education, tourism, digital services) — are shorter, supported by just-in-time systems and lighter assets. Digitalisation supercharges this: e-CNY, instant settlements (mBridge and CBETS), blockchain-enabled supply chain visibility, and programmable finance truncate M-C-P-C’-M’ turns. Receivables days fall, inventory turnover rises, and working capital recycles faster.
My earlier book, China, Trust and Digital Supply Chains illuminates this affinity. Challenging the Western “trust” trope in blockchain discourse, I argue that China’s zero-trust architectures — verifiable data flows, digital vouchers and a growing basis of supply chain finance — enable intensified economic interactions without presupposed interpersonal trust. This directly serves circuit acceleration and policy goals of finance serving the real economy. Chapters on monetary evolution link digital RMB and supply chain finance to circuits of accumulation, reinforcing dual circulation and self-reliance without detachment into fictitious capital.
Now, as savings mobilise from dormant deposits or property expectations into these quicker circuits, velocity rises. Less net credit expansion is needed per unit of output over time, as mobilised prior surpluses substitute for gross liquidity creation. This dampens debt overhang risks while sustaining growth — precisely the mechanism reducing reliance on old pro-cyclical leverage. Recent data shows velocity remains low (~0.41 GDP/M2 in 2025, historically subdued), reflecting lingering frictions: hoarding as “cash at bank”, weak transmission and funds looping in financial assets rather than real circuits. M2 growth (~8.6% YoY as of May 2026) outpaces nominal GDP, which is consistent with pooling.
As I have discussed recently, Luigi Pasinetti’s framework of structural economic dynamics provides a powerful lens for this rotation. Pasinetti models the economy as vertically hyper-integrated subsystems tied to final goods, with non-uniform productivity growth (ρi) and demand growth rates (ri) across sectors. Structural change involves reallocating resources as techniques evolve and demand compositions shift, with investment often leading and consumption/savings as residuals.
China’s trajectory exemplifies this: autonomous policy-steered investment in “new quality productive forces” (tech, green, advanced manufacturing) drives re-proportioning from saturating real estate subsystems to expanding high-ρi chains. Engel’s Law amplifies domestic services demand (less capital-intensive), complementing export pull. Savings reflect strong accumulation opportunities rather than suppressed consumption. Digital infrastructure enhances subsystem integration and efficiency, raising overall productivity and enabling demand re-proportioning without neoclassical aggregate rebalancing. My recent updates to analyses of China’s model highlight this as investment-led transformation rooted in classical reproduction schemes, where finance facilitates material reproduction over fictitious expansion.
Engel’s Law observes that as household incomes rise, the share of expenditure on necessities (especially food) declines, with spending shifting toward higher-income-elastic goods and, crucially, services (healthcare, education, leisure, culture, eldercare, tourism, etc.). In China, this is playing out, albeit with nuances:
Services now account for ~46.1% of per capita household consumption expenditure (2025), up significantly and outpacing goods retail growth. Service retail sales grew ~5.5% in 2025 vs. weaker goods demand.
Policy explicitly targets this: State Council plans emphasise services consumption (eldercare, healthcare, tourism, sports, cruises/yachts and cultural experiences) as a new growth driver for domestic demand. This aligns with the 15th Five-Year Plan’s focus on expanding service supply to meet development-oriented (vs. survival) consumption.
This is not a neoclassical consumption rebalancing (reduced savings → broad household spending surge), which misses the qualitative transformations taking place by blanding out by way of mono-dimensional aggregates. Instead, what we are witnessing is a compositional shift within consumption and overall demand: domestic services complement a stable domestic foundation, coupled with export/high-tech final goods as outlets for rising productivity and incomes. As the structural shift takes place in the composition of domestic consumption, we can expect some disruptions as systems re-proportion via addressing suboptimal sector “layout” coupled with imbalances between online and offline transactions and infrastructure (see Zhong Nan and Zhang Chengxu’s recent discussion here to gain a feel for the way these issues are being conceptualised).
This emerging socialist finance system, anchored to an evolving structural composition of production-circulation-consumption circuits, starkly contrasts with the financialised logic inherent in capitalism. In capitalist dynamics, as described by Hyman Minsky, periods of stability breed risk-taking: hedge financing gives way to speculative and Ponzi structures, inflating fictitious capital (claims detached from underlying surplus production). I raise Minsky because Pan Gongsheng’s predecessor at the helm of the PBOC, identified risks of China’s own Minsky Moment in 2017 had property leveraging been allowed to continue expanding. On Minsky’s financial instability hypothesis, over-accumulation leads to crises when realisation falters — asset bubbles burst, debt deflations ensue and the real economy suffers. Finance becomes an end, detached from material/energetic substrates, pursuing self-expansion via leverage, derivatives, and speculation.
China’s approach these days proactively mitigates these risks, drawing on the lessons of the deleveraging of the real estate sector from 2020 onwards. Xi Jinping emphasises preventing finance from “self-circulation and self-inflation,” treating risk prevention as foundational. Pan’s macro-prudential tools, stock revitalisation, and market deepening; Zhang Yu’s decoupling observations; and digital zero-trust systems all anchor finance to productive use value circuits. By shortening turnover, mobilising dormant capital (profits and household savings), and prioritising direct financing/risk-sharing for innovation, the system limits leverage buildup in legacy sectors while supporting quality growth. Finance remains a servant to the metabolic realities of energy, materials, labour and technology in the real economy — not a master prone to periodic detachment and crisis.
In an increasingly fragmented geopolitical landscape, the search for resilient cross-border payment systems has intensified. China’s recent advancements— CIPS, mBridge, and the newly operational CBETS — offer a compelling model for countries seeking to settle trade in national currencies while mitigating risks from traditional Western-dominated infrastructure. It also consolidates the role of digitalised finance within the wider strategic remit of accelerating circulation. As an aside, these platforms do not eliminate sanctions exposure entirely, but they meaningfully reduce it by shortening chains, enabling direct local-currency flows, and distributing control.
CIPS, launched in 2015, serves as the foundational RMB clearing and settlement system. It has scaled dramatically, processing trillions annually and providing a direct alternative to SWIFT for renminbi transactions. By minimising correspondent banking layers, it already lowers dependency on third-party jurisdictions prone to extraterritorial pressures.
mBridge takes this further as a multilateral CBDC platform. Built on a permissioned distributed ledger, it connects central banks running validating nodes in a fully interconnected topology. Commercial banks access via their domestic central bank. The system supports instant atomic PvP settlements in wholesale CBDCs, with EVM-compatible smart contracts, ISO 20022 messaging, and embedded compliance tools. Privacy is preserved through pseudonymous addresses and encrypted metadata, while each jurisdiction retains data sovereignty. Early results show settlement times collapsing from days to seconds and costs dropping by at least 50% compared to traditional rails.
Coupling supply chain digitalisation with mBridge settlements is a central feature of domestic and international reforms aimed at reducing overall circulation times and reducing the stock of capital needed within the system at any moment in time to facilitate the flow of use value.
Launched in 2026, CBETS (“数币达”) acts as the user-friendly gateway atop mBridge and CIPS. It unifies access through a modular, componentised architecture with three sub-platforms: a centralised digital payments layer for retail/high-frequency flows, a blockchain-based service platform (on Chengfang Chain) for trade and supply chain traceability, and an emerging digital assets platform. CBETS emphasises low integration costs, 7×24 operations, and tiered access models — API direct for sophisticated players, lightweight SDKs for branches, and agency routing for smaller institutions. Hong Kong serves as a convenient entry node for many overseas participants.
For countries aiming to mitigate sanctions risks through national currency settlement, the value proposition is clear. Direct connectivity reduces reliance on USD intermediaries vulnerable to blocking or secondary sanctions. Local-currency pairs (RMB with THB, AED, etc.) avoid forced conversion. The decentralised node structure and programmable compliance features allow participants to balance efficiency with regulatory autonomy.
Integration is pragmatic and phased. Central banks begin with observer status or formal accession to mBridge, deploying nodes and aligning domestic RTGS/CBDC systems via APIs. They then authorise commercial banks. Banks select CBETS access tiers based on capabilities: larger institutions pursue direct integration for full functionality, while smaller providers leverage agency models or partnerships. Fintech vendors offer productised components to accelerate onboarding, often within 3–12 months. Non-bank financiers participate indirectly through banking channels, ideal for supply chain and commodity flows.
Early adopters across Asia, the Middle East, and beyond are already piloting real-value transactions. As participation grows — currently dozens of banks and expanding central bank interest — the network effects will strengthen. Challenges remain of course, including liquidity management, legal harmonisation for smart contracts, and gradual geographic coverage. Yet the direction is unmistakable.
These platforms demonstrate that financial infrastructure can evolve toward greater pluralism without chaos. For policymakers and institutions navigating de-risking pressures, proactive engagement is strategic prudence. By building capacity in CIPS, mBridge and CBETS, countries can safeguard monetary sovereignty, lower transaction frictions, and foster trade in their own currencies. In a multipolar world, diversified rails are not optional — they are essential infrastructure for resilience and autonomy.
As I argued in my 2023 book, the “pivotal issue is reducing overall supply chain turnover time, and increasing the rate of realisation of capital through its circuits of transformation. … Increased speed of circulation places downward pressure on the cost of funds, as the time period that capital is idle is reduced and recoverability probability improves … increased speed of circulation raises the return on capital for a given time period” (p. 175). These objectives seem to be taking shape systemically via the ongoing collection of initiatives being launched by the Central Bank, with domestic and global implications.
We can now draw some threads together, and present some of the principal features of the emerging contours of a “strong socialist financial system” as seen through the analytical lens of the PBOC and senior analysts, and a wider Marx-anchored frame of finance in the role of value circulation. Pan’s and Zhang’s diagnosis point to the following:
Dampened credit demand as structural, not cyclical weakness: Old model was credit/debt-intensive due to long-cycle, asset-heavy projects. New subsystems (high-tech, green and advanced manufacturing) are lighter on traditional bank loans per GDP unit. “Loan deceleration with quality improvement” becomes the new normal. Revitalising inefficient stock has an equivalent growth impact to new loans.
Savings (dormant money capital) mobilisation: High savings rotate from property absorption (financial shell) into financial assets, wealth management, equity/bonds, and working capital/fixed capex in productive chains. Policy explicitly encourages medium/long-term capital into markets — this mobilises prior surpluses without proportional new liquidity/credit creation. This then reduces private debt overhang risks (less Ponzi-style leverage buildup in legacy sectors).
Growth implications: Arguably neutral-to-positive, I would suggest. Productivity gains (ρi in Pasinetti terms) in expanding subsystems, better resource allocation via markets, and diversified financing (risk-sharing in VC/equity for early stages) can sustain income growth even with slower aggregate credit expansion. Investment remains an autonomous driver; and consumption is induced. This is re-proportioning of hyper-integrated subsystems toward higher-productivity techniques and demand composition (including high-tech final and intermediate goods for both the domestic and international markets).
For both Pan and Zhang, risk management is emphasised (macro-prudential tools, and strong supervision) so as to address transitional frictions like malproportioned cross-sector capacity or market volatility, without reverting to broad stimulus. Pan’s Lujiazui speech (June 2026) highlights the financial structure evolution precisely for lighter-asset, innovation/services-oriented activities. New subsystems (tech, green, producer/consumer services) require less bank debt per unit of growth than old real estate/infra-heavy models. Real estate/infra loans dropped from >60% to ~10% of new loans; “Five Articles” (including services-relevant areas) rose to >70%. Service provisioning is typically more labor-intensive and less capital-intensive than real estate development or heavy fixed-asset projects. This reduces the need for massive medium/long-term credit creation while still absorbing mobilised savings into working capital, human capital, and operational flows.
Zhang Yu’s “new boat” analysis (new vs. old economy crossover) extends naturally from this: the new economy includes not only midstream manufacturing/exports but also production-oriented and consumer services. Domestic services demand (Engel-driven) provides a stable, less pro-cyclical complement to export pull, supporting profit-income cycles without the old liquidity-tightening dynamics.
What then are the macro-economic implications on growth, debt and velocity? My own broad assessment of the state of play today is as follows.
The credit-fuelled growth of the past is over and we can expect greater recycling of prior surpluses (profits / savings) as real estate development takes a back seat. So, China’s overall savings will decline but not by switching to consumption per se (the mainstream neo-classically-inspired ambition) but by being absorbed by demands for working capital to facilitate fixed capital formation and expansion and supply chain inventory flow. This will recycle into another cycle of income growth on the back of productivity enhancing capex. Dormant savings activation plus faster turnover means the system can support higher real output with moderated money growth. This reduces private debt overhang risks (less reliance on gross leverage buildup) while recycling surpluses into productive working/fixed capital. This moves effectively addresses the financialisation risk dynamics I discuss in detail in Thermoeconomics in a Time of Monsters.
Growth is likely to remain positive and sustainable, even as measures of success begin to broaden out from narrow GDP measures. Pasinetti-style dynamics show growth driven by differential productivity and demand re-proportioning, not endless credit/debt intensity. Services expansion (labour-intensive, Engel-fuelled) and high-tech chains amplify this. Policy focus on “stock revitalisation” and market allocation enhances efficiency. Ongoing short- and medium-term developments in thermodynamics efficiency (on which see my recent book Thermoeconomics in a Time of Monsters) and shifting up the EROEI curve underpins the availability of Available Energy Potential to be social surpluses for distribution and provisioning as part of enhancing the foundational economy.
Current M2 velocity remains subdued amid transitional pooling, but it is reasonable to expect mobilisation into quicker circuits (manufacturing inventory turnover, services flows and digital payments/e-CNY) to assist in accelerated circulation. When necessary, more heavy-handed regulatory moves to push enterprises to hasten supplier payments will also facilitate smoother liquidity flows system-wide. Pan’s emphasis on market liquidity and transmission supports this. Work will need to be done here to monitor and promote this, as production and consumption re-apportionment takes place. As such, the head-winds will include lags in rotation (skills formation mismatches, excessive legacy capacity in some areas, and persistent savings being held as “cash at bank” rather than circulating via structured financial products), external demand shocks, or incomplete transmission could delay benefits. A relatively immature supply chain finance products sector will also need to carry more weight in to the future, as part of smoothing of flows. However, the overall framework counters low-velocity financial looping by anchoring to material core reproduction.
This dynamic strengthens the case for a high-quality accumulation cycle: savings mobilised efficiently into faster circuits, sustaining income growth via productivity and compositional shifts (ongoing exports to global south economies + domestic services) without old-model fragilities. It’s a coherent extension of the “new boat” narrative.
Meanwhile, the contours of a “strong socialist finance system” are now becoming visible. In sum, they comprise:
Diversified, lighter financing involving a shift to direct / equity for high-uncertainty new subsystems with banks focused on the “Five Articles;”
Enhanced circulation efficiency via expanded deployment of digital infrastructure for rapid turnover, higher velocity and reduced credit intensity;
Savings mobilisation via recycling prior surpluses into working / fixed capital rather than hoarding or speculation or expanded household consumption per se;
Continued emphasis on risk mitigation having witnessed the Global Financial Crisis of 2008 and stared down their own Minsky Moment risks, involving intense macro-prudential vigilance, Party leadership (not private capital leadership), and subordination of finance to real economy goals to avert Minsky moments. Use value realisation will continue to dominate over fictitious capital circulation; and
Structural steering is a key feature with policy measures designed to ensure re-proportioning so that subsystems development aligns with productivity, demand (exports + services), and common prosperity.
This setup enables another cycle of income growth on the back of productivity-enhancing capex and services expansion, even with moderated net liquidity growth. Challenges remain, without a doubt — transitional frictions, external pressures and execution risks — but the framework counters secular stagnation narratives and financial fragility.
In summary, China is forging a finance system that learns from classical insights (Marx on circuits, Pasinetti on dynamics) and deploys digital tools to serve socialist “real economy” objectives. By keeping finance tethered to the real economy’s material substrate, it seeks sustained, high-quality accumulation without the boom-bust pathologies of unchecked financialisation. As my own work and the analyses of Zhang and Pan illustrate, this is not a temporary adjustment but the emergence of a coherent, resilient model for the 21st century.
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