The Party takes firm control of China’s financial sector

The two-day Central Financial Work Conference — a key closed-door financial policy meeting that takes place only once every five years — concluded yesterday in Beijing, and was chaired by Xí Jìnpíng 习近平.

The first such conference took place in 1997 amid the Asian Financial Crisis to undertake financial reform and promote stability. The most recent conference took place in 2017, which was the first time the event was overseen directly by Xi himself. This week’s conference was delayed by a year due to China’s COVID-zero restrictions, and was the first big economy-focused gathering since Beijing unveiled a series of ministerial reforms in March 2023, including the establishment of a State Financial Regulatory Commission.

This year’s conference was also rebranded: It was previously called the National Financial Work Conference (全国金融工作会议), but this year, it’s the Central Financial Work Conference (中央金融工作会议), possibly to indicate that Xi himself — the “core” (核心) — is in charge.

Last week, Xi visited the People’s Bank of China, China’s central bank, in a rare step that underlined the Party’s consolidation of control of markets and financial institutions.

Ahead of the conference, Bloomberg reported that key government officials, regulators, and bankers would be meeting to discuss measures to resolve financial risks, notably the ongoing property crisis and local government debt. The key challenge for Beijing is to engineer balanced growth while managing the risks of local government debt and the unstable real estate market.

“Dare to brandish the sword”

The official report on the conference published in the Communist Party newspaper, the People’s Daily, clearly signaled tighter Party control of China’s $61 trillion financial sector. The report states that “finance is the blood of the national economy and an important part of the country’s core competitiveness,” and emphasizes the imperative of strengthening financial regulation and guarding against and defusing risks.

The report repeatedly underlines the importance of the leadership of the Party’s Central Committee over financial work. Acknowledging the problems currently facing the financial sector, the report mentions “many hidden dangers in economic and financial risks” and weak financial regulatory capabilities, and outlines a number of specific “risk prevention and control” measures, including:

• Optimizing the “capital supply structure” and “promoting the deepening of the stock issuance registration system…and the development of the bond market”;
• Supporting large state-owned financial institutions;
• Enabling the insurance industry to serve as an economic shock absorber and social stabilizer;
• Enhancing the positions of Shanghai and Hong Kong as international financial centers;
• Establishing a government debt management mechanism;
• Improving the supervision system of real estate enterprises; and
• Strengthening the management of the foreign exchange market and maintaining the basic stability of the yuan exchange rate.

The overall objective is to “bring all financial activities under government supervision,” and for the Party-state to “eliminate supervision gaps and blind spots, strictly enforce the law, dare to brandish the sword (敢于亮]剑 gǎnyú liàngjiàn), and severely crack down on illegal financial activities.”

Who is He?

Vice-premier Hé Lìfēng 何立峰 delivered the concluding speech at the meeting. He is considered China’s “economic tsar” and has just been appointed director of a key Party economic body, the Central Finance and Economic Affairs Commission.

Last week, He accompanied Xi on his visit to China’s central bank, and according to Reuters, He has been appointed to execute (not question) Xi’s ideas on the economy. Analysts also expect that He will be named head of a new and even more powerful Party economic body, the Central Financial Work Commission, which is expected to be revived by Xi. The body was established in 1998 to enhance the role of the Party in the banking and financial sector but was disbanded in 2003.