Anyone who’s been to the Netherlands has probably seen the endless fields of tulips, the impressive agricultural technology, the Dutch pigs exported around the world, and heard the surprising fact that the country ranks second globally in agricultural exports. It’s easy to assume that the Netherlands got rich through farming. I used to think that too, back when I first visited the country in the late 20th century.
But the reality is quite different. Agriculture actually plays a very small role in the Dutch economy. The vast majority of the country’s GDP, about 80.2%, comes from the service sector, with industry making up another 17.9%. Despite its reputation, agriculture contributes just 1.6% to the economy.
The Dutch have built their wealth primarily through the financial sector, which accounts for about 80.2% of the country’s GDP. The scale of the Netherlands’ financial industry is enormous; total banking assets are roughly 253% of the national GDP. As a key part of the service sector, finance includes banking, insurance, investment management, and pensions. Amsterdam remains one of Europe’s most important financial centers, a status it has held since the Age of Exploration.
One of the key patterns in global development is that any modern, prosperous country must eventually develop and expand its financial sector. Without a strong financial system, even the most advanced economies risk being dragged down by debt and falling into crises with no clear way out. In this sense, finance is a fundamental “infrastructure” of any truly modern nation, arguably even more essential than roads, bridges, or utilities like water, electricity, and heating.
The United States is a classic example of a modern nation that rose from poverty to prosperity. The Federal Reserve, acting as the government's "bank", handles debt-related operations such as auctioning Treasury securities, issuing and redeeming instruments like savings bonds and Treasury bills, and managing the U.S. Treasury’s general account. According to 2020 data, the Fed held nearly USD 4.2 trillion in U.S. government debt. Through open market operations, it influences the supply of reserves and conditions in the securities markets, helping to reduce the cost of government borrowing. In fiscal year 2023, the U.S. conducted an intensive 416 auctions, issuing USD 20.17 trillion in marketable Treasury securities and USD 183.5 billion in retail savings bonds, while redeeming USD 243 billion worth of securities. The average daily cash flow reached an astonishing USD 205.4 billion.
In countries with high levels of debt, the most effective and indispensable way to ensure social stability is to make full use of developed financial markets to manage and reduce debt through various forms of trading. In the case of the U.S., even with the COVID-19 pandemic lasting three years, the U.S. Department of the Treasury’s Bureau of the Fiscal Service still managed to raise USD 5.47 trillion in federal revenue in fiscal year 2023. Additionally, it recovered USD 430 million in delinquent debt through offset and cross-servicing programs, all of which directly helped reduce the government's net debt burden.
In contrast, China’s financial infrastructure has not played the role it should, with its capital markets remaining sluggish for an extended period.
On September 30, 2024, the Shanghai Composite Index reached approximately 3,774 points, a 13-month high since May 2023, driven by government stimulus measures such as reserve requirement ratio (RRR) cuts and interest rate reductions. However, the gains were short-lived, and the index soon returned to previous levels. According to 2024 data, monthly closing prices fluctuated between 2,635 and 3,774 points. In February 2024, the index even fell to around 2,635 points, a nearly five-year low, amid weak economic performance and a continued downturn in the real estate sector. The Shanghai Composite Index’s all-time high was recorded on October 16, 2007, when it closed at 6,124.04 points. The reality is that over the past 18 years, the index has remained at roughly half that peak, struggling to make meaningful gains. In stark contrast, over the same period, the U.S. Dow Jones Industrial Average soared from 13,785 points to 44,342 points, more than tripling in value.
As mentioned earlier, China’s financial markets are far from thriving. In fact, China has two underperforming state-managed institutions. One is the Chinese Football Association, and the other is the China Securities Regulatory Commission (CSRC). These two bodies have long been seen as agencies that have been facing difficulties in improving.
China already has a sizable financial industry, but its core is dominated by state-owned banks rather than securities markets. According to available data and analysis, the U.S. securities industry contributes significantly more to the overall financial sector than its Chinese counterpart. This is largely due to the U.S. financial system’s strong market orientation, where securities markets, including stocks, bonds, investment banking, and brokerage services, play a major role in financial services trade, asset management, and revenue generation, typically accounting for 20% to 50% of the sector. By contrast, China’s financial system remains heavily reliant on state-owned banks, with the broader economy depending primarily on indirect financing. As a result, the securities industry in China contributes a relatively modest share, around 5% to 15%. So, while China has the second-largest bond market in the world by size, its overall impact remains limited due to an underdeveloped market structure, low levels of direct financing, and inefficiencies in capital allocation.
Looking from the aspect of social policy effectiveness and the performance of the securities industry, the current state of China’s financial sector has, in effect, ceded much of the country's financial potential to private commercial companies such as Ant Group, Alipay, and Tencent, helping them create growth miracles. It remains unclear whether this outcome was intentional, a deliberate policy choice, or simply the result of unconscious policy shortcomings.
We have repeatedly emphasized in the past that China's economy has now entered a phase of debt-driven growth, a stage many developing countries experience during their development. To continue making progress in this phase, the top priority must be the development of a robust securities market. Without a mature and thriving capital market, a debt-driven economy becomes a ticking time bomb. China cannot rely solely on a bank-dominated system of indirect financing to support its future development in the face of mounting debt. Looking ahead, it is essential to plan for, incentivize, and build a vibrant, developed securities market. The very process of establishing such a market carries intrinsic value in supporting sustained economic growth.
Therefore, whether a country is truly modernized or not can often be seen in the level of development and completeness of its financial sector, which serves as a fundamental part of its societal infrastructure.
