In his decade as China’s top leader, Xi Jinping has asserted greater control for himself and the Communist Party over the country’s economy. Now, Xi has moved to extend that power more forcefully than ever over China’s financial system.
The Communist Party issued a detailed ideological statement Friday in Qiushi, the party’s main official theoretical journal, that made clear that it expected banks, pension funds, insurers and other financial organizations in China to follow Marxist principles and pay obedience to Xi.
The Qiushi paper, which was being closely studied by bankers and economists in China, could cut against efforts by Beijing to show that the economy is open to investment even as it places a heavier hand on business.
Barry Naughton, an economist at the University of California at San Diego who has long studied China’s transition to a market economy, said that the document signaled that the finance sector would be subject to ever-tighter oversight and forced to serve government policies more actively.
“The financial sector will not be expected to push for market-oriented reforms or even necessarily maximize profit,” he said. “As a program for the financial sector, it is ambitious, disappointing and somewhat ominous.”
Western banks such as HSBC, BNP Paribas and JPMorgan Chase have sizable operations in mainland China that fall under the purview of Beijing regulators. But some financial institutions have been paring back. Citibank announced on Oct. 9 that it was selling its consumer wealth management business in mainland China to HSBC. Vanguard has been exiting its limited operations on the mainland.
China has long demanded that financial firms follow Beijing’s policies and the principles of the party. Yet for nearly four decades after the death of Mao Zedong in 1976, the party seemed to be gradually loosening its controls over society, the economy and banking. Financial institutions were encouraged to innovate and pursue profits.
Xi has been broadly reversing this liberalization. He and other leaders had called for tighter regulatory control during a conference on financial policy in late October. The Qiushi essay underscored that this shift is now cemented in place as part of the party’s ideology.
That has made market-oriented economists increasingly nervous.
“Politics will for sure further dictate China’s finance, effectively moving China even closer to how it was before the reforms started in 1978,” said Chen Zhiwu, a finance professor at the University of Hong Kong.
Some of the policy targets set forth in the essay would not be unusual as regulatory goals in the West. For example, it calls for banks to emphasize financial services for the “real economy,” which the party has long interpreted to include ample financing for the country’s industrial base.
But it also calls for a strong role in finance for Xi personally and for Marxist ideology generally. That follows a pattern that emerged for other sectors during the national congress of China’s Communist Party a year ago, but has been less apparent in finance — until now.
The essay details a speech given in private by Xi at the end of October at China’s Central Financial Work Conference, which is convened once every five years to guide financial regulation.
But like the conference, the party statement in Qiushi didn’t offer specific solutions for the country’s many financial troubles. These include soaring debt, widening budget deficits at local governments, the collapse of a large trust bank, and the insolvency of real estate developers that were among the country’s biggest borrowers.
Moody’s, the credit rating agency, announced Tuesday that it was lowering its credit outlook for the Chinese government to negative. It had previously assigned a stable outlook for the country’s credit rating, which remains at A1, near the top of the ratings scale.
The official silence on what to do about China’s troubled finances and flagging economic recovery coincides with a mysterious delay in a long-expected gathering of a powerful party committee.
In recent years, the financial work conference has been followed in the same year by the Third Plenum of the party’s Central Committee — where top officials map out the country’s economic policy for the next five years. But the plenum has yet to be scheduled and may be delayed until next year. The looming breach of tradition has led to speculation about disarray in economic policymaking.
The Communist Party unit that issued the statement in Qiushi — the Central Financial Working Committee — is headed by Vice Premier He Lifeng. He has been a close associate of Xi since 1985, when the two men began working together in southeastern China’s Fujian province. He now has a lead role in setting economic and financial policy in China.
Qiushi is the main journal providing pronouncements on China’s current ideology, which is known as Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. The statement Friday said that Xi’s speech to the financial conference, “is a valuable ideological crystallization formed by our party’s unremitting exploration of the path of financial development with Chinese characteristics.”
Zhu Tian, an economics professor at the China Europe International Business School in Shanghai, said the document should be interpreted primarily as a political statement, not a policy prescription. “Politics affects all important areas, and economic or financial issues are themselves political issues,” he said.
Indeed, Communist Party control over finance comes up repeatedly in the Qiushi statement. “We must unswervingly adhere to the centralized and unified leadership of the party Central Committee over financial work, uphold and strengthen the party’s overall leadership over financial work,” it said.
Top Chinese regulators have already begun to issue statements endorsing the ideological stance. These included a lengthy discourse Monday by Yi Huiman, the Communist Party secretary and chair of the China Securities Regulatory Commission, which oversees the country’s stock and futures markets.
Victor Shih, another specialist in Chinese economic policy at the University of California, San Diego, said that calls for finance to serve society are often heard in the West as well.
But with Chinese authorities taking more responsibility for finance, banks may continue to lend and companies may continue to borrow on the assumption that the state will bail them out even if they make mistakes. Shih cautioned that this could “continue to give rise to careless financial behavior for actors who see comfort in the center’s absolute guarantee for stability.”
(This article originally appeared in The New York Times.)
