China’s Dedollarization Bet Has a Major Caveat

I think a lot of these de-dollarizing headlines we’ve recently seen are missing one crucial aspect in the final analysis: 

China's economic integrity.

The country's 163 million-strong middle class citizens are an attractive market for company and country exports. 

Abroad, Chinese nationals spent $250 billion in 2017 alone. Limiting cross-border flows of its nationals offers Beijing significant economic leverage. 

So far so good.

BUT. 

China's population has begun to decline, global infertility rates are rising, and the legacy of the one-child policy is hitting hard. 

What does that mean for Beijing's geopolitical/financial leverage in foreign policy?

In short: a weaker position. 

The pull of China's economic gravity is a function of its ability to sustain its hyper-financing and maintaining a steady growth of the middle class (an economic demographic that historically constitutes the bulk of GDP in consumer-based economies).

Consequently, insofar that China does not suffer a major financial or demographic setback soon, it will continue to try to pull countries closer and regionalize Asia as a bulwark against the West.

This model - along with deeper entrenchment in Asia - will work until China's internal financial, economic, and demographic dynamics implode.