In recent years, the Chinese Communist Party has begun a sweeping purge of the financial industry, citing anti-corruption measures. According to incomplete statistics, the number of officials in the Chinese financial system scrutinized in 2022 was around 77, which surged to 104 in 2023. As of September 10th this year, according to financial media reports, 67 financial industry professionals have been under investigation this year.
Since August, authorities have detained at least three top investment bankers from different securities companies, causing concerns within the entire industry. Insider sources revealed that Hua Tong Securities and other state-owned securities firms have recently asked employees to hand over their passports. Some employees were informed that regulatory authorities are reviewing initial public offerings and other fundraising activities, and they may be summoned for questioning at any time.
The ongoing purge has sparked industry panic, leading to a wave of executive resignations in A-share listed companies in mainland China. According to incomplete statistics, from August to the present, in 27 trading days, over 1100 resignation notices have been issued by A-share listed companies.
American economist Davy J. Wong stated to media that in China, top investment bankers are strictly referred to as securities firms, which are essentially senior executives appointed through power channels. He pointed out that Chinese securities firms differ from all other securities firms worldwide; American securities firms often have investment functions, serving both as banks and investors, and there are many private banks and brokerages. However, in China, securities firms purely engage in intermediary services, mainly state-owned or government-controlled enterprises, operating within a planned economic system. Therefore, Chinese so-called investment bankers have not learned much about Western economics; their education mainly consists of socialist political economics and mixed-up academic theories, with widespread issues of corruption, rent-seeking, and lack of capability among political bureaucrats.
Wong believes that all Chinese securities firms operate similarly to companies like Sinopec and China Tobacco, relying on privileges, licenses, and monopolies, merging the concept of white gloves with bureaucratic officials to deceive investors, rather than playing a positive role in society.
With the emphasis on “new quality productivity” while simultaneously cleaning up the financial industry, innovation among Chinese startups may be stifled. Financial Times reported that in 2018, during the peak of venture capital funding, China established 51,302 startups. By 2023, this number had plummeted to 1,202 startups, with further declines expected this year.
Three venture capital executives estimated that state-owned funds currently represent around 80% of the market capital. A Chinese innovation expert, who preferred to remain anonymous, remarked, “In an era of anti-corruption, the government has taken over this industry, which contradicts the spirit of venture capital firms engaging in high-risk, high-potential projects.”
According to public documents and several insiders, renowned Chinese private equity funds like Sequoia Capital and Hillhouse Capital have either increased overseas investments or actively sought trading opportunities in the US and Europe.
Wong stated that the financial services industry plays a crucial role in modern economies, as many new technologies and products often face funding challenges. The role of the financial services industry is akin to optimizing the allocation of societal resources.
Furthermore, the crackdown on the financial industry in conjunction with the emphasis on “new quality productivity” might impede the innovative spirit of Chinese startups. As reported by the Financial Times, during the peak of venture capital funding in 2018, China established 51,302 startups. By 2023, this number had drastically fallen to 1,202, with a further decline expected this year.
Three venture capital executives estimated that state-owned funds currently represent around 80% of the market capital. A Chinese innovation expert, who preferred to remain anonymous, remarked, “In an era of anti-corruption, the government has taken over this industry, which contradicts the spirit of venture capital firms engaging in high-risk, high-potential projects.”
According to public documents and several insiders, renowned Chinese private equity funds like Sequoia Capital and Hillhouse Capital have either increased overseas investments or actively sought trading opportunities in the US and Europe.
Wong stated that the financial services industry plays a crucial role in modern economies, as many new technologies and products often face funding challenges. The role of the financial services industry is akin to optimizing the allocation of societal resources.
Moreover, the crackdown on the financial industry might hinder innovation among Chinese startups. As reported by the Financial Times, in 2018, during the peak of venture capital investment, China established 51,302 startups. By 2023, this number had dwindled to 1,202, with further declines projected this year.
In conclusion, the recent developments in the Chinese financial sector indicate a significant shift in government policies and industry practices that could have far-reaching implications for the country’s economic landscape.