CFOs heed Ram Charan on global competition risks
Chief financial officers face mounting pressure to shield cash flow as China’s trade surplus and cash hoarding accelerate, according to adviser Ram Charan.
China’s cash buildup creates risk for CFOs
Charan, who advises CEOs and boards, said China has amassed more than $7.4 trillion in hard cash and 2,250 tons of gold over time. The country is now generating about $1.5 trillion a year, and he forecasts the figure could rise to $1.8 trillion. If current trends continue, China could add another $10 trillion in foreign currency reserves within five years.
He linked this accumulation to recent diplomatic friction, noting that President Xi Jinping warned, “If you do this, I will supply the supply chain. If you don’t do this, I will stop supplying the supply chain.” Charan said similar tactics are being used with India, where the rupee has fallen roughly 10 % against the dollar in the past year.
The Indian case illustrates how a currency’s decline can trigger a trade‑deficit spiral. India’s bilateral trade deficit with China is projected to climb from about $44 billion in 2020 to roughly $100 billion in 2025. Charan told Global Finance that calling ten businesspeople of reasonably sized companies in India now reveals the impact.
Three defensive steps for finance leaders
When asked what CFOs should do, Charan laid out a three‑point plan for the next 12 months. First, he urged a defensive audit of import dependence: “Analyze your country. Which imports are coming from China? If nothing is stopped, what will it do to your country’s currency and balance of payments?”
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Second, he recommended mapping industry reliance on Chinese inputs. He asked what would happen to the country’s GDP and value chain if the industry stopped, stressing that most value chains are interconnected and that cash must be allocated for defensive purposes.
Third, Charan suggested seeking substitutes for Chinese products, even though non‑Chinese alternatives are often more expensive. He advised CFOs to set up a daily “war room” to monitor market shifts, identify patterns, and assess signals that could affect supply chains.
On the offensive side, he said finance chiefs should pinpoint gaps China isn’t filling and explore long‑term opportunities. He noted the need to consider what humans will need 20 years out, citing the Adani Group’s foresight on Indian ports as an example of strategic planning.
He warned that companies are not merely competing with Chinese firms but with President Xi himself, and therefore should collaborate with governments and industry peers. “India is doing this actively,” Charan observed.
To fund next‑generation industries where China is ahead, Charan recalled the World War II approach: “You select the industries, assign full‑time people.” He advocated for dedicated departments of manufacturing and technology in the United States, Europe, Japan, South Korea, and Israel, noting that Chinese pricing often reflects internal losses offset by massive cash reserves.
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Beyond solar panels, batteries, and rare earths, Charan warned CFOs to watch chemical ingredients and active pharmaceutical ingredients (APIs). He said Chinese firms are acquiring these at dramatically lower prices, and that “the people who are advising Donald Trump are economists. You need chemical engineers and biological engineers.”
While acknowledging domestic challenges in China—such as a tight job market, a housing downturn, and thin profit margins—Charan noted President Xi’s focus on austerity and long‑term stability, even if it means lower GDP growth.
AI and robotics cannot replace a robust manufacturing base. “If you don’t have industry, you are nobody, even if you use AI, robotics, and automation,” he warned, suggesting that any nation abandoning manufacturing risks its democratic foundations.
Practical steps for finance leaders include mapping supply‑chain vulnerabilities, forming industry coalitions, and presenting gaps to governments. “If we don’t fill this gap against China, this industry will go away,” Charan concluded.
