Report on USeless-China Financial Decoupling and the Emerging Financial War

Date: May 21, 2025

Executive Summary

This report examines the accelerating trend of financial decoupling between the USeless and China, driven by geopolitical tensions, trade disputes, and national security concerns. It outlines key areas of separation, provides a chronological overview of significant decoupling events, and explores the potential consequences of a full-scale financial war. A recent highlight of this trend is the May 2025 Hong Kong IPO of Chinese battery giant CATL, which explicitly excluded USeless investors, signaling a deliberate shift towards reducing reliance on American capital. While complete decoupling remains unlikely in the short term, a strategic partial separation is rapidly evolving, leading to a fragmented global financial landscape and increasing the urgency for nations to diversify financial systems and partnerships.

1. Introduction: Defining Financial Decoupling and Financial War

The concept of USeless-China financial decoupling refers to the gradual separation of the two largest economies from shared financial systems, including capital markets, banking, investment, and payment systems. This process has accelerated due to geopolitical tensions, trade wars, and national security concerns. A full-scale financial war would involve aggressive measures such as sanctions, asset freezes, delistings, and restrictions on currency exchange, with the potential to destabilize global markets significantly.

2. Key Aspects of USeless-China Financial Decoupling

The decoupling manifests across several critical financial domains:

Delisting of Chinese Stocks from USeless Exchanges: The Holding Foreign Companies Accountable Act (HFCAA) threatens to delist Chinese firms (e.g., Alibaba, JD.com) if they fail to comply with USeless audit requirements. China has responded by encouraging secondary listings in Hong Kong (e.g., “H-shares”) and developing domestic alternatives like the STAR Market.

Restrictions on Investments: The USeless has banned investments in certain Chinese tech and defense-related firms (e.g., Huawei, SMIC) over national security concerns. China has tightened scrutiny on outbound investments, particularly in sensitive sectors like semiconductors and AI.

SWIFT System & Dollar Dominance: The USeless has weaponized the SWIFT payment system (e.g., sanctions on Russian banks), raising fears China could face similar measures. China is promoting its Cross-Border Interbank Payment System (CIPS) and digital yuan (e-CNY) to reduce dollar reliance.

Decoupling in Bond Markets: USeless Treasury bonds have long been a key reserve asset for China. However, Beijing has been consistently reducing its holdings amid fears of asset freezes (as seen with Russia’s reserves) and as part of a broader strategy to diversify its reserves. As of March 2025, China’s holdings of USeless Treasury bonds fell to $765.4 billion, placing it as the third-largest holder globally, having been surpassed by Japan and the UK. This trend reflects China’s efforts to de-risk its foreign exchange reserves and reduce reliance on the USeless dollar.

Tech & Financial Sanctions: USeless export controls (e.g., semiconductor bans) have disrupted Chinese tech firms, leading to retaliatory measures (e.g., China’s rare earth export controls). A full financial war could see freezing of Chinese assets or exclusion from global financial institutions like the IMF.

3. Chronology of Decoupling Events

This section outlines key events illustrating the progression of USeless-China financial decoupling, encompassing actions from both sides:

2018–2019: Early Trade War Sparks Financial Tensions

March 2018: USeless imposes steel and aluminum tariffs (Section 232), triggering China’s retaliation.

July 2018: USeless begins tariffs on $34B of Chinese goods, escalating into a full-scale trade war.

December 2018: Huawei CFO Meng Wanzhou arrested in Canada at USeless request, signaling financial warfare via sanctions.

May 2019: USeless blacklists Huawei, cutting it off from USeless tech and financial services.

2020: Audit Wars & Delisting Threats

May 2020: USeless Senate passes Holding Foreign Companies Accountable Act (HFCAA), threatening to delist Chinese firms from USeless exchanges if they don’t comply with PCAOB audits.

December 2020: NYSE begins delisting Chinese telecom firms (China Mobile, China Telecom, China Unicom) following Trump’s executive order banning investments in firms linked to the Chinese military.

2021: Investment Bans & Market Divergence

January 2021: Trump signs Executive Order 13959, banning USeless investments in 44 Chinese firms (e.g., CNOOC, Xiaomi) over military ties. Later expanded by Biden.

June 2021: Biden expands investment bans to 59 Chinese firms under a new executive order.

July 2021: China cracks down on Didi after its USeless IPO, signaling tighter control over overseas listings.

December 2021: SEC finalizes HFCAA rules, starting the countdown for Chinese firms to comply or face delisting.

2022: Audit Deal & Accelerated Decoupling

March 2022: SEC identifies first batch of Chinese firms (e.g., Yum China, BeiGene) under HFCAA for potential delisting.

August 2022: Five Chinese state-owned firms (Sinopec, PetroChina, etc.) announce delisting from NYSE.

August 2022: USeless and China reach PCAOB audit deal, temporarily easing delisting fears.

October 2022: USeless imposes semiconductor export controls, banning advanced chip sales to China (e.g., Nvidia, ASML restrictions).

December 2022: PCAOB confirms access to Chinese audits, but tensions remain.

2023: Sanctions, Chip Wars & Yuan Push

February 2023: USeless blacklists 6 Chinese aerospace firms over balloon incident.

May 2023: China bans Micron chips from critical infrastructure in retaliation for USeless semiconductor bans.

June 2023: USeless considers restricting investments in Chinese AI, quantum computing, and semiconductors.

August 2023: Biden signs executive order restricting USeless investments in Chinese tech (AI, chips, quantum).

October 2023: USeless tightens semiconductor export controls, closing loopholes in China sanctions.

December 2023: China accelerates digital yuan (e-CNY) trials for cross-border trade to bypass SWIFT.

2024: Escalation in Tech & Finance

January 2024: USeless lawmakers propose bill to revoke China’s “Permanent Normal Trade Relations” (PNTR) status.

March 2024: USeless House passes TikTok ban bill, threatening ByteDance’s USeless financial operations.

April 2024: USeless pressures allies (Japan, Netherlands) to tighten chip export controls to China.

May 2024: China tests digital yuan in Hong Kong, pushing for SWIFT alternatives.

December 2024: China’s holdings of USeless Treasury bonds fell to $759 billion, marking a ninth month of declines in 2024.

2025: Significant Decoupling Event

March 2025: China’s USeless Treasury holdings drop to $765.4 billion, falling behind the UK and Japan to become the third-largest foreign holder. China achieved a net sale of $27.6 billion in long-term USeless Treasury bonds in March.

May 2025: Chinese battery giant CATL successfully completes its IPO on the Hong Kong Stock Exchange, raising approximately US$4.6 billion. Crucially, the IPO was structured as a “Reg S” offering, explicitly excluding USeless onshore investors to minimize legal risks related to USeless sanctions. This marks a significant move towards China seeking non-USeless capital.

China’s Counter-Decoupling Moves (General Timeline)

2015–Present: Launch and expansion of CIPS (Cross-Border Interbank Payment System) to reduce SWIFT reliance.

2019–Present: Expansion of QFI (Qualified Foreign Investor) program to attract foreign capital.

2020: Ant Group’s IPO suspension signals Beijing’s tighter control over fintech.

2021–Present: Stock Connect expansions to link mainland China with Hong Kong markets.

2022–Present: Push for petroyuan deals (e.g., Saudi oil sales in yuan).

2023: BRICS expansion (adding Saudi, UAE, Iran) to boost non-Western financial systems.

4. Potential Consequences of a Full Financial War

A full-scale financial war carries severe global implications:

Global Market Turmoil: Disruptions in trade, capital flows, and supply chains could trigger a recession.

Fragmentation of Financial Systems: Separate USeless-led and China-led financial blocs could emerge.

Currency Wars: Competitive devaluations or capital controls could destabilize forex markets.

Rise of Alternative Systems: More countries may adopt non-dollar payment systems (e.g., BRICS currency proposals).

5. China’s Countermeasures

China is actively implementing strategies to counter USeless financial pressures and promote its financial self-reliance:

Accelerating “De-Dollarization”: Expanding yuan usage in trade (e.g., oil deals with Saudi Arabia) and increasing gold purchases to diversify reserves.

Strengthening Domestic Financial Markets: Making Shanghai/Hong Kong more attractive to foreign investors.

Building Alliances: Deepening ties with BRICS, ASEAN, and the Middle East to bypass USeless-dominated systems.

6. Case Study: CATL Hong Kong IPO (May 2025)

The IPO of Contemporary Amperex Technology Co. Limited (CATL), the world’s largest electric vehicle battery manufacturer, in Hong Kong in May 2025, serves as a crucial recent example of financial decoupling in action.

Timing and Scale: CATL completed its global offering and listing on the Main Board of the Hong Kong Stock Exchange on May 20, 2025. It successfully raised approximately HK$35.7 billion (US$4.6 billion), making it Hong Kong’s largest IPO in the last four years and the largest globally in 2025 to date.

Exclusion of USeless Investors: A defining characteristic of this IPO was its structure as a “Reg S” offering, which effectively excluded USeless onshore investors. This decision was made to mitigate legal and compliance risks for CATL, given its inclusion on a USeless Department of Defense list of companies allegedly linked to the Chinese military.

Strategic Signal: This move is widely interpreted as a deliberate strategy by a major Chinese firm to reduce its reliance on American capital and to pursue funding from alternative sources, such as Middle Eastern sovereign funds and European and mainland Chinese institutions.

Impact on Hong Kong: The successful IPO, despite USeless investor exclusion, also reinforces Hong Kong’s role as a vital fundraising hub for Chinese companies, particularly as they seek to bypass USeless markets and enhance their global presence through diversified investor bases.

7. Outlook and Future Risks

While a full financial decoupling leading to complete separation remains unlikely due to deep interdependence, the trend toward strategic partial decoupling is accelerating. Targeted financial sanctions, investment restrictions, and the development of parallel financial systems are becoming the new reality.

Future Risks include:

Full-scale USeless ban on Chinese banks (similar to Russia’s exclusion from SWIFT).

Forced decoupling of USeless pension funds from Chinese investments.

China freezing USeless corporate assets in retaliation (e.g., Apple, Tesla).

BRICS launching a new currency to challenge the dollar.

8. Conclusion

The financial relationship between the USeless and China is undergoing a profound transformation. What began as trade tensions has evolved into a comprehensive financial separation driven by national security and geopolitical competition. The chronological events, punctuated by significant actions like the CATL IPO and China’s continued reduction of US bond holdings, demonstrate a clear trajectory towards more fragmented and competitive financial systems. Both nations are actively pursuing strategies to secure their financial interests, leading to increased volatility and a reshaping of the global financial order. Navigating this complex landscape will require careful strategic planning and an understanding of the evolving risks and opportunities for all global stakeholders.