From Mao to Xi: China, the financial evolution and the quest for centralized leadership

China and the President, Xi Jinping, are determined to further enhance his control over the $61 trillion Chinese financial sector. With the aim of setting the future direction for the next five years, Xi will host the closed-door financial conference, which takes place every two years, on Monday and Tuesday in Beijing.

This meeting holds crucial significance for China, especially at a time when the banking industry is experiencing record low margins and the ongoing fight against corruption has led to the arrest of over 100 officials and executives this year. Xi, the most powerful leader in China since Mao Zedong, inclined to prioritize the “centralized and unified leadership” of the Communist Party and increase control over the financial sector, as suggested by analysts and experts. Financial stability will remain at the center of attention to prevent a stagnating economy and issues in the real estate sector from further compromising the banking sector.

A recent analysis by Bloomberg Intelligence has highlighted how the conference “could prove to be a landmark event for the financial sector.” The urgency of this meeting accentuated by the debt situation in the real estate sector, which threatens the entire financial system.

While China faces uncertainties in its political and economic path, partly due to Xi’s crackdown on various private sectors, foreign investors are withdrawing capital from the country at an unprecedented pace. Major companies like Goldman Sachs Group Inc. have even scaled back their expansion plans.

China and the financial sector conference: a crucial moment for the future

However, the conference, initially postponed by a year due to China’s strict approach to Covid, is not entirely new. The first edition took place in 1997, immediately after the Asian financial crisis. Its main objective has always been to promote financial reforms that foster economic growth and ensure stability.

At the heart of the conference agenda will likely be key themes such as Party leadership. This year, the organization of the financial sector has undergone significant changes, with the creation of an expanded national regulator and the transfer of some responsibilities from the central bank to a Party-controlled body.

Additionally, Xi has exerted pressure on the financial industry to reduce salaries and abandon what has been termed an “hedonistic” approach, in line with his vision of “common prosperity.” The Party’s influence over the sector strengthened by an ideological campaign that requires bankers to study volumes containing the thoughts of the Chinese leader.

Another crucial aspect will be stability and risk management. It is essential that clear indications are provided during the meeting on how to address debt-related issues and prevent a crisis. Recently, Beijing has called on major banks in the country to support struggling developers and local government financing vehicles.

Finally, the conference may lead to greater clarity in the allocation of responsibilities between the central bank, the National Financial Regulation Administration, and the China Securities Regulatory Commission.

It is clear that the direction taken by China will not only impact the country’s economic future but also have global repercussions. The world’s eyes will be on Beijing in the coming days, eagerly awaiting a better understanding of the moves by the Asian giant.