(Bloomberg) — Bankers in China are being asked to correct their thinking, clean up their “hedonistic” lifestyle and stop copying Western ways.
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The directives, part of a 3,500-word commentary last week from the country’s top anti-corruption watchdog, are just the latest sign of President Xi Jinping’s campaign to tighten government Communist Party control of the financial system has a long way to go.
As the National People’s Congress opens this weekend, Xi Jinping is poised to consolidate further control by reviving a powerful committee to coordinate economic and financial policy, and at the same time Install close allies to monitor them all.
That follows the sudden disappearance of one of China’s top investment bankers and the fall of dozens of officials over the past 18 months in the most sweeping corruption crackdown in the sector. finance so far. In a warning last week, China’s Central Commission for Discipline Inspection said bankers should give up the illusion of being “financial elites”.
“All of these developments say one thing: The Communist Party will dominate everything, including business,” said Shen Meng, director of Beijing-based investment bank Chanson & Co. economic and financial. the heart of the economy as a lubricant for its smooth development, and if the economy goes bad, the sector is mostly to blame.”
This is a pivotal moment for Xi as he seeks to control risk in the $60 trillion financial sector — imposing tighter controls on capital outflows, controlling debt and rule out risky behavior — while he tries to restore growth and manage the economic fallout of the spiral in relations with the United States. Targeting the industry can provide Xi with convenient cover if it doesn’t go well.
The National People’s Congress — where top leaders will evaluate the government’s past performance and map out policies for the coming year — offers Xi his first chance to reframe institutions. state institutions since he won a third term breaking precedent at the party ‘s twice-decade congress .
China’s top leaders often use the first parliamentary meeting after the congress to reorganize key government departments. In 2018, Mr. Xi carried out the most comprehensive overhaul in decades to consolidate his control over key functions.
‘Butcher broker’
Authorities are considering restoring the long-disbanded Central Financial Work Commission to allow the ruling Communist Party to assert more control, according to people familiar with the matter. The committee is headed by Ding Xuexiang, Xi’s chief of staff, a source said. He Lifeng, who is expected to become China’s new vice premier, is also being considered for a role as party secretary at the People’s Bank of China, according to the Wall Street Journal.
As part of the change of guard, the nation’s securities regulator is poised to get a new president nicknamed “broker butcher”, people familiar with the matter are familiar with. said earlier. Wu Qing, the vice mayor of Shanghai, was famous for cracking down on wayward traders while at the regulator in the mid-2000s, shutting down 31 companies.
At the same time, the financial industry has been rocked by the disappearance of Bao Fan, who oversaw some of the nation’s biggest tech deals over the past decade. Bao is cooperating in an unspecified investigation by Chinese authorities, according to China Renaissance Holdings Ltd., the investment bank he heads. The Wall Street Journal reported on Thursday that the banker had been detained as part of a corruption investigation.
Then this week, following an investigation that began last year, China’s top prosecutor charged Tian Huiyu, the former chairman of China Merchants Bank Co., with allegations of taking “massive” bribes. , abuse of power and insider trading.
That turmoil is giving global investors another reason to be cautious about the long-term outlook for the Chinese market. The mass protest over China’s reopening has stalled with key benchmarks in Hong Kong falling as much as 15% since January. China’s tech stocks have lost a total of $263 billion in market value over the same period.
An encouraging recent development — a landmark US-China agreement to end an impasse over access to the audit papers of Chinese companies listed in New York — is also under suspicion as authorities in Beijing pressure their state-owned giants to end ties with the Big Four global accounting firms.
“Investors are caught between trouble and trouble,” said Diana Choyleva, chief economist at Enodo Economics, a China-focused research firm based in London. “The growth in liquidity benefits Chinese stocks, but Xi Jinping remains attached to an economic model that means the Party has ultimate control over every aspect of the economy,” she said. ,” and China still risks violating US sanctions on Russia.
Tight controls on capital outflows also remain a priority for authorities trying to prevent Chinese wealth from leaving the country as they revive the economy. Beijing has stepped up its crackdown on high-profile gamblers in Macau due to concerns about the city’s role in transferring money abroad, with the region passing new legislation allowing for tighter government oversight. against casinos and the authorities jailed former flamboyant industrial magnate Alvin Chau earlier this year.
That effort is also highlighting China’s brokerage industry. China’s Securities Regulatory Commission has repeatedly vowed this year to tighten scrutiny of illegal cross-border brokerage services since it ordered two such firms to overhaul their businesses. Surname.
On top of that, officials have put pressure on foreign and domestic banks to limit payments in the sector as part of Xi’s push to promote “common prosperity.”
financial opening
The tightening comes even as authorities pledge to stay open to foreign banks. Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley, fund managers and insurers are scaling up after being given full control of ventures in China. The country has partially opened up to attract new capital and foster more discipline in its financial markets.
William Ma, chief investment officer of GROW Investment Group, said cleanup efforts will be underway as China develops its pension fund system and seeks to attract more liquidity into its market. “From a global investors perspective, according to our communication with Chinese regulators, financial markets are continuing to be open up,” and more is expected. policy announcements after political meetings in March, he said.
A key figure, Guo Shuqing, Party Secretary of the People’s Bank of China and head of the China Banking and Insurance Regulatory Commission, is expected to retire after leading the crackdown. leverage in the real estate sector, control the shadow banking sector and its allies. – Peer-to-peer lending. He will leave a huge hole to fill as Xi places his associates in key roles, centralizing economic policy decision-making in fewer hands.
Dinny McMahon, director of market research at Trivium, said of Guo: “I can’t imagine anyone else with the inclination, reputation or system knowledge to replicate what he did. He said recent new measures governing the bank’s disclosure of bad loans and capital risks may suggest Guo may be trying to ensure his replacement continues to improve risk management.
But it’s a delicate balance for Xi – mitigating risks without spooking markets to support an economy that could suffer more as the US and its allies increasingly embrace wartime competition. strategy with China.
“Policymakers are attaching great importance to protecting red lines and preventing systemic financial risks,” said Shen at Chanson. “This is especially important at a time when the domestic economy is still struggling and China faces growing pressure on the geopolitical front.”
–With support from Jing Li, Phoebe Sedgman and April Ma.
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