I'm sorry to be blunt but there's a lot of loose thought here. China's main problem is that is has a lot of promissory notes from the US government that state it will pay such and so USD to the holder of these notes at set intervals in the future. Inherent in this is that the US "honours" this obligation at its whim. The standard economic theory holds that borrowers wouldn't renege on their obligations because that would ruin their reputation with lenders - which just shows how limited and disconnected from reality standard economic theory is.
The theory doesn't acknowledge political differentiation between lenders, i.e., that the US reneging on Chinese lenders wouldn't harm its reputation with Japanese or European lenders, and certainly not with its own population (by far the largest share of lenders to the US government). Furthermore, the theory doesn't address captive lenders, which China is. We celebrate China's trade surplus with the US as a victory, but in reality what it means is that Americans are handing China more USD than Chinese are handing Americans RMB. What does China do with this USD? Lend it to the American government on the promise of
more USD in the future.
What China needs to do is first stop the bleeding. Change the terms of trade with the US so that it doesn't accumulate mountains of USD that it can't offload except back to the US government. Russia has provided a beautifully simple solution to this dilemma - force payment in its domestic currency. China should follow this fine example and force the US to pay for Chinese goods in Chinese currency.
How would this work when RMB outside China is rarer than unicorns? Not China's problem... that's the beauty of it. That's the US's problem and it better solve it. Allow me to introduce you to one of my favourite scenes:
That's how it would work. Trade deficit? Fuck you, pay me in RMB. Capital controls? Fuck you, pay me in RMB. Financial collapse? Fuck you, pay me in RMB. Struck by lightning? Fuck you, pay me in RMB.
Once China does that, it can just sit on the US bonds it already does own and just wait for them to mature and use that cash to purchase tangible assets from anyone stupid enough to still accept USD.
