Over his ten-year leadership, Xi Jinping has strengthened control over China’s economy. Recently, he has taken a more assertive approach to extend this influence over the country’s financial system. A detailed ideological statement in the Communist Party’s official journal, Qiushi, emphasizes the expectation for financial entities in China, including banks, pension funds, and insurers, to adhere to Marxist principles and align with Xi’s directives. This move may contradict Beijing’s efforts to convey economic openness amid increased regulatory interventions in business operations.
Barry Naughton, a University of California economist specializing in China’s market economy transition, interprets the recent document as a signal for increased and more stringent oversight of the finance sector. He suggests that financial institutions will be compelled to actively align with government policies rather than advocate for market-oriented reforms or profit maximization.
While some view this shift as ambitious, others consider it disappointing, and somewhat foreboding. Notably, Western banks like HSBC, BNP Paribas, and JPMorgan Chase, operating in mainland China, are subject to Beijing’s regulatory control, with some institutions, such as Citibank and Vanguard, scaling back operations.
For almost four decades following Mao Zedong’s death in 1976, China insisted that financial institutions adhere to Beijing’s policies and the principles of the party. During this period, there appeared to be a gradual relaxation of the party’s influence on society, the economy, and banking. Financial institutions were encouraged to innovate and pursue profits.
Jinping has been reversing the trend of liberalization in China, particularly in financial matters, as evidenced by tighter regulatory control advocated during a late October financial policy conference. The Qiushi essay now solidifies this shift as part of the party’s ideology, causing concerns among market-oriented economists.
While some policy targets align with Western regulatory goals, such as emphasizing financial services for the “real economy,” the essay also highlights a pronounced role for Xi in finance and a promotion of Marxist ideology, echoing patterns seen in other sectors during the previous national congress. The essay outlines Xi’s private speech in late October at China’s Central Financial Work Conference.
Moody’s, the credit rating agency, announced a downgrade in its credit outlook for the Chinese government to negative on Tuesday. Despite maintaining the country’s credit rating at A1, near the top of the scale, the previous stable outlook has shifted. The downgrade comes amid an unusual delay in a highly anticipated meeting of an influential party committee, the financial work conference.
Traditionally followed by the Third Plenum of the party’s Central Committee in the same year, the absence of a scheduled plenum has sparked speculation about potential disarray in economic policymaking.
Chinese regulators, including Yi Huiman, the Communist Party secretary and chair of the China Securities Regulatory Commission, have started endorsing the newly emphasized ideological stance. Victor Shih, a Chinese economic policy specialist at the University of California, San Diego, noted that calls for finance to serve society are uncommon in the West.
As Chinese authorities assume greater control over finance, there is a risk that banks and companies might persist in borrowing and lending with the expectation that the state will intervene to rescue them from mistakes. Victor Shih warned that this situation may encourage reckless financial behaviour among those who find reassurance in the central government’s guarantee of stability.