Xi Jinping Strengthens Control over China’s Financial System

In his ten-year tenure as China’s top leader, Xi Jinping has asserted greater control over the country’s economy. Now, Mr. Xi is extending his power over China’s financial system more forcefully than ever before. The Communist Party recently issued an ideological statement in the party’s main official theoretical journal, Qiushi, emphasizing the expectation for financial organizations like banks, pension funds, and insurers to adhere to Marxist principles and obey Mr. Xi’s leadership.

The release of the Qiushi paper has raised concerns among economists and bankers in China, as it suggests that the finance sector will face tighter oversight and be forced to actively support government policies instead of pursuing market-oriented reforms or maximizing profits. This move by Mr. Xi marks a reversal of the party’s previous efforts to loosen controls over the economy and banking sector to encourage innovation and profit pursuit.

While Western banks like HSBC, BNP Paribas, and JPMorgan Chase have operations in mainland China that fall under Beijing’s regulations, some financial institutions have been scaling back. For example, Citibank recently announced the sale of its consumer wealth management business in mainland China to HSBC.

For nearly four decades after Mao’s death in 1976, the party appeared to be gradually loosening its controls over society, the economy, and banking. However, Mr. Xi’s leadership has signaled a shift towards tighter regulatory control. The recent Qiushi essay solidifies this shift as part of the party’s ideology, making market-oriented economists increasingly concerned about China’s financial future.

The essay outlines several policy targets, including banks prioritizing financial services for the “real economy” and emphasizing the role of Mr. Xi and Marxist ideology in finance. However, it does not offer specific solutions for China’s financial troubles, such as soaring debt, widening budget deficits, and insolvencies of major borrowers.

Despite these challenges, the Chinese government has remained silent on how to address these issues, leading to speculation about economic policymaking disarray. The delay in scheduling the Third Plenum of the party’s Central Committee, where top officials map out economic policy for the next five years, has further fueled this speculation.

The Communist Party unit responsible for issuing the statement in Qiushi is headed by Vice Premier He Lifeng, a close associate of Mr. Xi. The statement emphasizes the party’s control over financial work and the need to strengthen its leadership in this area.

Chinese regulators have also expressed support for the ideological stance outlined in the Qiushi statement. However, experts warn that increased state responsibility for finance may lead to careless financial behavior, as actors assume the government will bail them out in case of mistakes.

Overall, Mr. Xi’s move to extend his control over China’s financial system has raised concerns about the future of market-oriented reforms and the economy’s openness to investment.