The Chinese government recently announced its intention to establish a financial “national team” to utilize state-owned financial capital. Experts have pointed out that the Chinese Communist Party (CCP) is strengthening financial centralization, effectively turning the financial market into a quasi-state-owned entity. This move is seen as a way to handle potential crises in the future, including social unrest and military conflicts.
The 9th meeting of the Standing Committee of the National People’s Congress of the CCP concluded in Beijing on April 26. According to reports from the National People’s Congress website, Deputy Minister of Finance Liao Min reported on the special research and rectification of state-owned financial asset management of financial enterprises commissioned by the State Council on the 23rd.
The report was submitted by the Ministry of Finance, the People’s Bank of China, the National Audit Office, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission.
Details revealed in the report suggest that authorities are drafting plans to strengthen the management of state-owned financial capital, “adjusting the proportion of state-owned financial capital in industries such as banking, insurance, and securities in a timely and reasonable manner.”
The report emphasizes leveraging state-owned financial capital to dominate the market, with a particular emphasis on “upholding and strengthening the leadership of the Party” and “concentrating efforts to build a financial industry ‘national team’.” It also mentions “promoting local state-owned financial enterprises to focus on core businesses and improve quality and efficiency.”
Taiwanese economist Wu Jialong stated to the Epoch Times on April 29 that whereas the term “national team” used to represent a country’s participation in international competitions, in the context of the CCP’s financial sector, it mainly refers to increasing the share of state capital in financial institutions domestically.
“Previously, many financial institutions were privately owned, not state-owned. Now they want to increase the share of state capital, which means strengthening control in the financial sector, reflecting the CCP’s attempt to prevent financial systemic risks, given the high levels of non-performing assets in banks.”
Wu Jialong pointed out that the CCP believes certain influential non-state financial institutions, often referred to as shadow banks or shadow financial institutions, could drag down state-owned banks. The direction now is towards centralizing finance, assuming risks in a socialist manner, or, in other words, quasi-state ownership.
American economist David Huang also shared his views with the Epoch Times on April 29, stating that what the authorities refer to as the “national team” is essentially centralizing the national financial power. “Over a decade ago, China’s financial reform led to the influx of local state capital, with each province establishing many financial institutions, many of which have ended in failure. Now, there’s a reintroduction of national management, a centralizing move towards authority.”
He further explained that in China’s financial industry, non-banking sectors such as insurance and securities have a high presence of private capital besides local state-owned enterprises, including prominent private financial entities like Tomorrow Holding of Xiao Jianhua and Zhongzhi Holding of Ren Zhiqiang.
“There are approximately 18 trust industry licenses in operation in China, with around 15 dominantly held by the private sector. Strengthening Party control means central governing, turning the financial market into a planned economy model under the Party’s management.”
Regarding the concept of the financial “national team” proposed by the Ministry of Finance, Wu Jialong mentioned that as one of the supervisory bodies of the financial industry, the Ministry of Finance is currently facing financial difficulties within the CCP. If they rely solely on taxes and various fees to cover the large deficit, they will eventually print money, leading to inflation and unbearable living conditions.
“The collapse of the Soviet Union was also due to financial crises. The CCP should be fully prepared in advance to prevent issues in the financial and fiscal sectors, especially if there are military actions externally, which require substantial funding. Managing finance and fiscal matters now is likely preparation for future social unrest, political turbulence, or potential military conflicts.”
In recent years, the CCP has been continuously cracking down on private capital’s involvement in financial operations. Financial institutions of Tomorrow Holding have been gradually dismantled.
On April 29, 2021, the People’s Bank of China, the former China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly regulated 13 network platform enterprises involved in financial operations. These companies included Tencent, Du Xiaoman Financial, JD Financial, ByteDance, Meituan Financial, Didi Financial, Lufax, Tianshixing Technology, 360 Digitech, Sina Financial, Suning Financial, Gome Financial, and Ctrip Financial.
Before this, Ant Group had been called for a meeting, and Alibaba’s founder Jack Ma had to relinquish control over Ant Group.
Wu Jialong noted that with increased control over the financial sector, the dissemination of economic data may be restricted, leading to a decrease in the freedom of the financial market and transparency of information. Additionally, market competition could be hampered.
“In an effort to monitor, maintain stability, and prevent financial risks, political intervention in finance might disrupt certain financial areas and result in some costs. This could worsen the business environment and prompt foreign entities to depart more swiftly.”
Existence for over a decade, the previously rapidly developing local financial asset trading centers have become channels for illegal financing and aids to illegal fundraising due to insufficient regulation. In early April this year, the CCP initiated the closure of regional gold exchanges one after another. However, mainland residents question whether the chains of related interests will be held accountable once these gold exchanges are shut down.
Wu Jialong emphasized that the CCP fears that a financial and fiscal crisis could erupt due to certain triggers, creating a domino effect. The current preventive measures taken by the authorities are intended to address financial and fiscal issues through political means. Various actions against systemic risks aim to preserve their regime.