The Financial Silk Road

The return of China

– Relations between China and the West underwent a radical shift starting in 1971, when the United States adopted a new strategy toward Beijing – a policy that began taking shape after Richard Nixon’s inauguration in January 1969. From the outset, Nixon’s Asia strategy aimed at rapprochement with China, driven by two immediate objectives: first, to weaken Chinese economic and military support for North Vietnam in its war against the U.S.; and second, to exploit the growing rift between Beijing and Moscow as part of an anti-Soviet strategy. By the late 1960s, the timing was ripe.

Since 1964, the People’s Republic of China (PRC) had been rapidly advancing its nuclear military capabilities, threatening the Soviet Union’s dominance as the leading nuclear power among socialist states. Additionally, Beijing had witnessed the 1968 Prague Spring crackdown while also taking note of Nixon’s pledge to gradually withdraw troops from Vietnam. The year 1969 marked a turning point in East Asian geopolitics. First came the Sino-Soviet border clashes (March), followed by Nixon’s official announcement of U.S. troop withdrawals from Vietnam (September). These events set the stage for a new geopolitical order.

The next step in reshaping Sino-American relations required bringing the two nations’ diplomatic ties into the open. Until then, their interactions had been conducted discreetly through 136 embassy-level meetings in Geneva (1954-1958) and Warsaw (1958-1970). The opportunity arose in April 1971 during a ping-pong tournament in Japan, when the Chinese team invited their U.S. counterparts to visit China. That June – around the same time Washington formally agreed to restore Okinawa’s sovereignty to Japan – American athletes, accompanied by journalists, became the first U.S. citizens to set foot in China in over two decades. This event gave birth to what would later be known as “ping-pong diplomacy”.

Coinciding with the tournament, Nixon lifted the two-decade-long U.S. trade embargo on China, eliminating the requirement for American companies to seek Treasury Department approval to export strategic technologies and goods. The ping-pong matches also laid the groundwork for subsequent diplomatic talks. The first high-level meeting took place in the summer of 1971 (July 9-11), when National Security Advisor Henry Kissinger secretly travelled from Pakistan to Beijing to discuss the principles of rapprochement and prepare for Nixon’s official visit.

Though Kissinger is often remembered as the architect of U.S. China policy, credit also belongs to lesser-known figures, including then-Defence Secretary Melvin Laird and Kissinger’s own aide, Winston Lord, who later served as U.S. Ambassador to China (1985-1989) and Director of the North Korea Human Rights Commission.

Nixon’s visit was officially announced on July 15 in a televised address, marking the first “Nixon Shock”. This term typically refers to Japan’s stunned reaction upon learning that the Nixon administration was opening relations with Communist China – a country that had yet to sign a peace treaty with Tokyo. In Japan, both the China opening and Nixon’s subsequent monetary policy shift (see below) are collectively called the “Nixon Shocks”, whereas Western analysts usually distinguish between the “Nixon Shock” (China) and the “Dollar Shock” (monetary policy).

From this point on, China began a gradual integration into the Western economic system. The first major outcome was the UN’s recognition of the PRC as the sole legitimate representative of China, leading to Taiwan’s expulsion. Beijing secured a permanent seat on the Security Council – though notably, the U.S., despite championing the change, abstained from the vote. This early ambiguity in Washington’s stance toward China would come to define bilateral relations for decades to come. The China opening coincided with another historic shift: Nixon’s economic and financial reforms.

On August 15, 1971 – two months after lifting the embargo and one month after Kissinger’s trip – Nixon addressed unemployment and inflation by imposing wage and price controls, devaluing the dollar by 8%, and effectively ending the gold standard. This dismantled the Bretton Woods financial system established in 1944, sending shockwaves through Western allies (the “Dollar Shock”). While these measures had no immediate impact on China – their economies were not yet intertwined – they marked the beginning of a new global economic era.