China’s Ministry of State Security (MSS) has expanded its powers to become the new leading force in maintaining financial stability amid an economic slowdown.
Averting ‘Large-Scale Crisis’
On Oct. 30-31, the CCP held its Central Financial Work Conference—the highest-level meeting of China’s financial system—in Beijing, which all members of the Politburo Standing Committee attended. The State Council convened the event in the past, and the meeting was previously called the “National Financial Work Conference.”The change this year indicates that the CCP Central Committee is directly involved in the operation and decision-making of the financial sector.
Before this meeting, the central authorities established a new entity—the Central Financial Commission—to oversee the financial system, which includes a General Office that handles its day-to-day operations.
He Lifeng, a confidant of Mr. Xi, has become the director of the General Office, overseeing finance and directly reporting to the Chinese leader.
Meanwhile, the State Council’s Financial Committee and its offices were abolished as their responsibilities were superseded. This also means Mr. Xi has removed the premier’s power to supervise the financial sector.
At the first Central Financial Work Conference, it was emphasized that the CCP cadres must “strengthen financial supervision on all fronts, preventing and resolving risks.” The scope of financial supervision must be expanded to “include all financial activities, leaving no gaps.” The meeting also called on financial cadres to “dare to show the sword” and sternly crack down on illegal financial activities.
U.S.-based financial commentator Zhang Jinglun pointed out that Mr. Xi’s real concern is his own safety and the security of his regime, but his hardline approaches are ineffective.
In an interview with the Chinese language edition of The Epoch Times on Nov. 6, Mr. Zhang said: “The fact that Xi Jinping has personally taken charge of financial supervision proves that the financial risk has become so big that he is afraid it will get out of control and trigger a large-scale crisis.
MSS Becomes a Tool to Control Financial Sector
On Nov. 2, the Party Committee of the Central Bank of China and the Party Group of the State Administration of Foreign Exchange (SAFE) convened to discuss the minutes from the Central Financial Work Conference. The directive emphasized the need to sustain stable market expectations and uphold the bottom line of preventing systemic risk.The Ministry of State Security released a statement on the same day, threatening to punish those criticizing China’s economy. This caught the attention of global markets as the agency, which is typically low-key and unrelated to the finance sector, is not responsible for monitoring financial risks, a duty held by the Central Bank and SAFE.
“These doom-mongers, short traders, and plunderers are attempting to undermine the international community’s confidence in investing in China, with the aim of inciting financial instability within our country,” the MSS statement reads.
According to the ministry, the Chinese authorities admitted that risk is an integral part of financial activities and that serious systemic financial risks and crises will lead to a prolonged economic recession, instantly wiping out social wealth accumulated over the years and bringing about financial mistrust, societal imbalance, and mass unemployment.
Foreign Companies Leaving China
Multinational companies are closing their China operations one after another amid the Xi administration’s tightening control over the economy.U.S. mutual fund issuer Vanguard Group, the second-largest investment firm in the world, is disbanding its last team in China and has signed severance agreements with the 10 remaining employees in Shanghai, including the head of the regional branch.
Last month, Vanguard Group sold its 49 percent stake in its joint venture with Ant Financial. The closure of its Shanghai office by early next year is the final step in exiting China, a market it once saw as having huge potential.
In addition to asset management giants pulling out of China, foreign consulting firms are also leaving the country. Gallup informed its clients earlier this month that it would close its operations in China and advised them to move some of their projects out of the country. Gallup provides research and analysis services to companies for marketing purposes. It began operating in China in 1993 and had offices in Beijing, Shanghai, and Shenzhen.
Earlier this year, the CCP revised its counterespionage law with a vague definition of “espionage activities,” creating unpredictable risks for U.S. and multinational companies operating in China.
Moreover, from March to May this year, Chinese authorities raided several foreign companies, causing growing fear in the international business community.
Other multinational consulting firms taking steps to scale back their operations in the country include Forrester Research and Gerson Lehrman Group.
Mr. Zhang said that a few years ago, the central bank, the SAFE, and the public security police jointly supervised the financial system. However, he notes that the MSS has assumed a pivotal role in ensuring financial stability.
“You can imagine how serious the financial risks are. Xi Jinping’s use of this kind of financial control war to protect the financial system may be counterproductive, leading to the international community further selling China short,” he said.
