Shanghai and Beijing have both fallen sharply in the latest ranking of the world’s most competitive financial centers. The dynamism of China’s financial sector has waned markedly in part due to the Chinese Communist Party (CCP)’s recent policies, and the trend is intensifying.
With the outbreak of the pandemic in early 2020, CCP authorities implemented an extreme “Zero-COVID” policy that seriously hurt the Chinese economy.
Meanwhile, the CCP’s ongoing heavy-handed “regulation” of the financial sector and pervasive corruption have damaged China’s financial environment.
Decline in GDP Growth
China’s GDP growth in 2022 is far behind that of some other Southeast Asian countries due to the “Zero-COVID” policy, which led to many outward shifts in the industrial chain. According to recent data, Malaysia’s GDP growth rate in 2022 was 8.71 percent, Vietnam’s 8.62 percent, the Philippines’ 7.2 percent, India’s 6.7 percent, Indonesia’s 5.31 percent, Singapore’s 3.6 percent, and China’s 3.3 percent (the real figure may be lower). Such a phenomenon has been rare in the past 30 years.However, despite China’s economic malaise, the CCP has recently sent out a series of signals that it will regulate the financial sector more tightly.
Under the plan, the CCP will create a Central Financial Commission within its Party affairs system to oversee activities in China’s financial sector and formulate major financial policies. The Central Financial Work Commission, established in 1998 but abolished in 2003, will also be restored to provide unified leadership over Party affairs in the financial system. In addition, functions of the Financial Stability and Development Committee of the State Council will be transferred to the Central Financial Commission.
Distorting Development
Fang Qi, a U.K.-based veteran of the Chinese financial industry, said that some regulations and policies imposed by the CCP would further distort the development of the financial sector.“Judging from Beijing’s current positioning as the national financial management center and the newly announced reform plan for financial institutions, it is confirmed that ‘finance should be under the Party’s management.’ So you can imagine that the financial industry will follow this trend and flock to Beijing because China is not a market economy, but a government-driven economic model,” he told The Epoch Times on March 26.
After the reform of the tax-sharing system, the central authorities collect most of the tax revenue from the local authorities and then redistribute it, which is a transfer payment. As a result, the headquarters of most banks and state-owned enterprises were also located in Beijing.
By December 2022, 782 domestic and overseas listed companies were headquartered in Beijing with a total market value of over RMB 40 trillion (about $6 trillion), an increase of 60 compared with 2021. Shanghai’s domestic and foreign listed companies, though close in number to Beijing’s 633, have a total market value less than half of the former’s, at about RMB 13 trillion (about $2 trillion).
Beijing is the political center of the CCP, where the rich and big companies flock to trade power and money and maximize profits.
“Because of the proximity and relationships (power-money trading) there, it’s easier to get more shares of the pie,”Fang said.
At the financial forum that ended on March. 19, Li Wenhong also vowed to promote the construction of Beijing as a global wealth management center. As early as May 2022, the CCP issued the “Opinions on Promoting the Construction of Beijing as Global Wealth Management Center” circular. Its core content is consistent with the goals of the financial reform plan recently launched—to strengthen the CCP’s ability to control wealth and capital and to clarify that the Party is the supreme leader of the financial industry.
Fang believes that this is worth watching.
“Because wealth management centers are wealth management for rich people, private banks, and other high-value objects,” he said. “Beijing wants to build a global wealth center, which means the CCP wants to manage the money of rich people both at home and abroad.”
According to Fang’s analysis, the CCP will control China’s financial activities more tightly.
Fang said that more capital and financial institutions will be attached to powerful CCP departments or political groups.
Xia Yeliang, a former economics professor at Peking University, said that with financial decision-making concentrated in the hands of the CCP, the government is equivalent to the administrative organ of the Party.
“We know that the more open and freer the economy and finance, the better it works. It is a basic idea and experience that if power is controlled too much, then the sector cannot have great development.”
To strengthen its control over financial activities and its ability to control money, the CCP or a certain political faction within the Party is distorting normal economic and financial activities through its absolute monopoly on power, which has caused Shanghai and Beijing to fall in the competitiveness of the world’s financial centers. If this trend continues, China’s financial environment is bound to be further damaged.