China signals tighter Communist party control of finance sector

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China has signalled a further tightening of centralised Communist party control over its $61tn financial sector at a closely watched quinquennial policy conference that featured warnings of widespread weak governance and deep-rooted risks in the industry.

The two-day central financial work conference, chaired by President Xi Jinping, was held as Beijing searches for a new economic growth model while struggling with an anaemic post-pandemic recovery and growing geopolitical uncertainty. 

The gathering, which is intended to set the agenda for financial sector reform over the next five years, emphatically backed Xi and his allies’ drive to deleverage China’s huge real estate sector, shore up the finances of indebted local governments and clamp down on speculation and corruption.

“Finance is the blood and veins of the national economy and an important part of the country’s core competitiveness,” state broadcaster CCTV quoted the conference report as saying on Tuesday.

“We must adhere to the centralised and unified leadership of the Communist party in financial work . . . adhere to the fundamental purpose of finance as serving the real economy, and adhere to risk prevention and control as the eternal theme of financial work,” it said.

The conference, which was delayed by a year because of China’s strict zero-Covid policies, was the first such gathering since Beijing unveiled a sweeping shake-up of its financial regulatory architecture in March.

The moves included the creation of a Communist party-led Central Financial Commission, a super-regulator that will oversee government institutions such as the People’s Bank of China and China Securities Regulatory Commission and which has recruited almost 100 more officials in recent weeks.

The conference report harshly criticised the financial sector’s record, a signal of the dissatisfaction among national leaders that is behind the new tightening of controls and regulations. 

A years-long anti-corruption crackdown on China’s financiers has revealed deep-rooted corruption that involved high-profile state bankers and financial watchdogs.

“We should be soberly aware that all kinds of contradictions and problems in the financial field are intertwined and influence each other, some of which are still very prominent,” the conference report said.

“The quality and efficiency of financial services to the real economy are still not high. Financial chaos and corruption problems are repeated, and the financial supervision and governance capabilities remain weak,” it said.

The conference reiterated government calls for more capital to be directed towards technological innovation, advanced manufacturing and small and medium enterprises.

“The theme of the conference is to strengthen regulation and contain risks,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding that China’s property sector crisis and the indebtedness of local government financing vehicles were an increasing threat to the sector.

“The government will likely tighten financial regulation in the next five years to prevent systemic crisis,” Zhang said. “Large state-owned financial institutions will likely acquire more market share.”

The conference followed the announcement last week of government plans to issue an additional Rmb1tn ($136bn) in sovereign debt for infrastructure projects and several other measures in recent months intended to bolster investor confidence.

China’s manufacturing activity unexpectedly contracted in October, damping hopes of increasing momentum in the world’s second-largest economy and adding to pressure on policymakers to do more to boost lagging growth.

The financial work conference report stressed that China’s monetary policy would “remain prudent” and that the renminbi exchange rate would be managed at a “reasonable and balanced level”.

Additional reporting by Ryan McMorrow in San Francisco