Beijing’s Move to Increase Control Over China’s Finance Is a ‘Dead End’: Expert

Xi Jinping is ‘determined to resolve the economic crisis through political dictatorship,’ says one expert.
Beijing’s Move to Increase Control Over China’s Finance Is a ‘Dead End’: Expert
This aerial photo taken on October 31, 2021 shows a logo of China's developer Country Garden Holdings on top of a building in Zhenjiang, in China's eastern Jiangsu province. STR/AFP via Getty Images
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News Analysis

As top leaders gathered at China’s most significant financial conference, the Chinese Communist Party (CCP) indicated it will exert more control over the $61 trillion financial sector. While the meeting highlighted the challenges confronting CCP leader Xi Jinping regarding the ailing economy, experts say that it did not provide solutions to China’s financial difficulties.

The twice-a-decade National Financial Work Conference took place in Beijing from Oct. 30 to 31, according to state broadcaster CCTV. This meeting coincided with the regime’s efforts to address massive municipal debts and an ongoing housing crisis, both factors that analysts warn could further exacerbate economic problems.

Mr. Xi convened this year’s conference, CCTV said, which was delayed by a year due to the regime’s COVID-19 restrictions.

Since the inaugural conference in 1997 following the Asian financial crisis, these meetings have set the direction for the country’s financial policies. Business leaders, investors, and financial and political experts have closely followed these gatherings, seeking insights into Beijing’s strategies for rejuvenating the ailing economy.

The statement published at the end of the conference highlighted the CCP’s leadership in financial matters, with a commitment to manage financial risks and implement a long-term solution for local government debts. Nevertheless, from an outsider’s perspective, it yielded no concrete decisions.

“Nothing to watch for” at the meeting, said Li Hengqing, an economist based in Washington.

“The main thread of what [Xi] is doing is to centralize the power through institutional reforms,” Mr. Li told The Epoch Times, calling it “a dead end.”

Institutional Reform

This year’s conference coincides with Mr. Xi’s major restructuring of the financial system earlier this year.
Earlier this year, Mr. Xi created the Central Financial Commission, a Party organ, to create policies and supervise the financial sector, supplementing the role once played by the Financial Stability and Development Committee, a government institution under the State Council. The overhaul was unveiled during the annual gathering of China’s rubber-stamp legislature in March, which also handed Mr. Xi a norm-breaking third term as China’s top leader.

Another significant move announced at the conference was the revival of a financial watchdog, the Central Financial Work Commission. The commission was established in 1997 but disbanded in 2003.

The specifics regarding both commissions, including their composition and leadership, have not been disclosed to the public. According to Wang He, an analyst specializing in China affairs, this lack of transparency is “a common practice of the CCP.” Concealing the information of key Party organs is part of the CCP’s efforts to assert control over society, according to Mr. Wang.

An unfinished housing complex by Evergrande in Zhumadian, central China's Henan Province, on Sept. 14, 2021. (Jade Gao/AFP via Getty Images)
An unfinished housing complex by Evergrande in Zhumadian, central China's Henan Province, on Sept. 14, 2021. Jade Gao/AFP via Getty Images
Even though Mr. Xi is the most influential leader China has seen in decades, Mr. Wang points out that he had limited influence in the financial sector during his early years in office. This, Mr. Wang explained, was a result of the intricate dynamics between China’s prominent business figures and individuals in the top echelons of the CCP.

In communist China, “not everyone could be a player in the financial market,” he said, contending that market regulations favor the Party elites.

The stock market “flash crash” in 2015 marked the beginning of Mr. Xi’s efforts to rein in the financial sector, according to Mr. Wang. Since then, a slew of business magnates with political connections have been targeted by Beijing’s regulators. A recent example is Hui Ka Yan, founder of real estate giant Evegrande, who was placed under investigation by the authorities on suspicion of committing unspecified criminal activities. Mr. Hui is known to have close ties with Zeng Qinghong, former vice chair and a member of a political faction loyal to the late former CCP leader Jiang Zemin.
Additionally, Mr. Hui’s Evergrande is now the world’s most heavily indebted housing developer, with more than $300 billion in liabilities. Economists and regulators are concerned that if Evergrande collapses, it would not only affect its lenders and suppliers but reverberate through China’s financial sector and cause social unrest.

“China’s financial industry is already in a mess,” said Mr. Wang.

But the fact that politics are intertwined with business means there is no easy solution.

To solve the financial troubles from the root, Mr. Xi may need to crack down on all Party elites who control most of China’s resources and those who support prominent business figures, said Mr. Wang.

Adopting such an approach would essentially mean the dissolution of the CCP itself, he said, adding that it’s unlikely to reach that point.

Chinese leader Xi Jinping (C) is applauded by senior members of the Chinese Communist Party and delegates as he walks to the podium to make a speech during the opening ceremony of the 20th National Congress in Beijing on Oct. 16, 2022. (Kevin Frayer/Getty Images)
Chinese leader Xi Jinping (C) is applauded by senior members of the Chinese Communist Party and delegates as he walks to the podium to make a speech during the opening ceremony of the 20th National Congress in Beijing on Oct. 16, 2022. Kevin Frayer/Getty Images

Tightening Party Control

Instead, Mr. Xi chose to save the CCP by reinforcing its hold on finance.
Besides the crackdown on business figures, Mr. Xi and his top anti-corruption agency turned the sight to the vast financial system, Mr. Wang noted. In 2021, the Central Commission for Discipline Inspection spent two months inspecting major financial institutions, including the central bank and securities and insurance regulators. The discipline campaign has stepped up this year, with the Party’s watchdog pledging a “resolute” crackdown on corruption in the country’s financial sector.

Although Mr. Xi has restructured the financial system, he faces challenges. “The biggest challenge is: where can he find officials who are both politically reliable and capable of managing the [financial] industry?” Mr. Wang said.

Mr. Xi has filled the regime’s top decision-making bodies with his loyalists, but most of them, according to Mr. Wang, have limited financial experience.

Mr. Wang speculated that He Lifeng may assume a leadership role in the financial watchdog, as Mr. Xi entrusted him with the responsibility of concluding the key financial conference this week.

Mr. He, a close confidant of Mr. Xi, assumed the role of vice premier in March. Recent reports from state media have disclosed that Mr. He replaced Liu He, a Harvard-trained economist, as director of the office of the Central Finance and Economic Affairs Commission, which is responsible for overseeing the economy.

Chinese Vice Premier He Lifeng (R) speaks during a meeting with U.S. Treasury Secretary Janet Yellen (not pictured) at the Diaoyutai State Guesthouse in Beijing on July 8, 2023. (Mark Schiefelbein/Pool/Getty Images)
Chinese Vice Premier He Lifeng (R) speaks during a meeting with U.S. Treasury Secretary Janet Yellen (not pictured) at the Diaoyutai State Guesthouse in Beijing on July 8, 2023. Mark Schiefelbein/Pool/Getty Images

‘A Dead End’

Analysts express doubts about the ability of the new economic tsar to reverse the decline in the world’s second-largest economy.

Mr. Li pointed to the limited success of policies introduced by Mr. He’s predecessor, such as the “supply-chain side” reform aimed at deleveraging the economy and mitigating industrial overcapacity. “These policies were based on a market economy, but they didn’t work … when the Party’s power continued to expand,” said Mr. Li.

At the key financial conference on Monday and Tuesday, Mr. Xi acknowledged “many hidden risks” in the economic and financial sectors, and he called for an expanded role for the CCP.

“We must strength the centralized and unified leadership of the Party’s Central Committee in financial work … and improve the mechanism of Party’s leadership,” according to a summary of the meeting published by CCTV.

Mr. Li is concerned that China might regress to an era reminiscent of Mao Zedong’s rule when the CCP had control over essentials like food, employment, and all aspects of life.

“Achieving the Party’s comprehensive control means returning to the planned economy,” said Mr. Li. “The collapse of the Soviet Union already illustrated that the planned economy doesn’t work.”

Nevertheless, Mr. Xi still favors controlling the economy through top-down, centralized planning, as his priority is to avoid a Soviet-style fall.

“There is a fear that the regime may collapse at any time,” Mr. Li said. “By focusing on the Party’s control, he feels he could solve his governing crisis—temporarily.”

The emphasis on communist ideology and the CCP’s control, however, darkens the prospect of China’s economy.

The total debt in China has topped over 280 percent of GDP, according to data from a state-backed think tank. The massive debts threaten economic growth and social stability as the youth unemployment rate hit a record high. Mr. Li believes the debt bubble could burst “at any time.”

Facing a sluggish economy and soaring debts, “he [Mr. Xi] is determined to resolve the economic crisis through political dictatorship,” said Mr. Li.

“That is a dead end.”

Luo Ya contributed to this report.