Xi Jinping Strengthens Control Over China’s Financial System

06 Dec, 2023

Xi Jinping Strengthens Control Over China’s Financial System

China's top leader, Xi Jinping, renowned for asserting control over the country's economy during his decade-long leadership, is now intensifying his grip on China's financial system. The Communist Party has issued a comprehensive ideological statement emphasizing the expectation that financial entities, including banks, pension funds, and insurers, adhere to Marxist principles and submit to Mr. Xi's authority.

Published in Qiushi, the party's primary theoretical journal, the statement outlines a shift toward tighter oversight and increased alignment with government policies in the financial sector. Barry Naughton, an economist at the University of California, expressed concerns about the ambitious and somewhat ominous nature of the document, signaling a departure from market-oriented reforms and profit maximization.

The directive challenges efforts to showcase China's economic openness while placing a more substantial regulatory hand on businesses. Western banks like HSBC, BNP Paribas, and JPMorgan Chase, with significant operations in mainland China, fall under Beijing's regulatory purview. This move by China contrasts with the trend of some financial institutions scaling back operations in the country.

Xi Jinping's leadership has been marked by a reversal of the gradual loosening of controls over the economy and banking that occurred in the decades following Mao's death in 1976. The recent Qiushi essay cements this shift in ideology, signaling tighter oversight and active alignment with government policies in the financial sector.

While some policy targets outlined in the essay align with regulatory goals in the West, such as prioritizing financial services for the "real economy," it also emphasizes a strong role for Xi Jinping personally and Marxist ideology. This aligns with the broader pattern seen in other sectors during the national congress of China's Communist Party, reflecting a consolidation of power.

Despite the lack of specific solutions for China's financial challenges, including soaring debt and insolvency issues, the essay reflects the cementing of the shift in the party's ideology. Moody's recent downgrade of China's credit outlook to negative further adds to concerns about the country's financial stability.

The official silence on addressing financial troubles coincides with a delay in scheduling the Third Plenum of the party’s Central Committee, where top officials traditionally outline the country’s economic policy. The delay has led to speculation about disarray in economic policymaking.

As Xi Jinping consolidates control over China's financial system, the statement's political nature raises questions about potential repercussions on economic stability, regulatory practices, and the behavior of financial actors in the country.