BOFIT Viikkokatsaus / BOFIT Weekly Review 2024/02

At last spring’s National People’s Congress, China’s leaders announced a new National Financial Regulatory Administration (NFRA). The new agency assumed the responsibilities of its predecessor, the China Banking and Insurance Regulatory Commission (CBIRC) (BOFIT Weekly Review 10/2023). In May, Li Yunze was tapped to head NFRA. In addition, the regulator has been given responsibility for overseeing consumer protection in the financial sector, and late last year NFRA established a separate unit to supervise emerging industries, particularly fintech. At its March meeting, the CCP also established a new Central Financial Commission (CFC), which operates as the sector’s top planner and supervisor. The Commission’s activities were launched last year with prime minister Li Qiang named as leader. According to media reports, the CFC has employed staff from the finance ministry, the central bank and elsewhere. The new party organ assumes some of the authority once held by traditional institutions such as the central bank and regulatory agencies, thereby shifting power directly to the party. Observers note that this might increase the motivation for officials to insert themselves into altering the functioning of financial markets.

The Communist Party’s Central Financial Work Conference, which is held every five years to assess the need for financial sector reforms, took place in October. Last year’s conference unremarkably highlighted the prioritisation of economic and financial sector stability. The aim is to further centralise financial oversight and deal with risks sooner and more systematically. In particular, there is a strong need to reduce the risks facing small and medium-sized financial institutions. On the other hand, the party’s tightened grip on the financial sector could increase financial market risk if financial institutions have fewer opportunities to apply market-based solutions in their operations.

Turnover in financial-sector leadership positions was unusually high last year. The government last summer appointed a new PBoC governor, Pan Gongsheng (BOFIT Weekly Review 36/2023). Two new PBoC deputy governors, Zhu Hexin and Lu Lei, were appointed in December. Zhu was also put in charge of the central bank-operated State Administration of Foreign Exchange (SAFE), which was previously headed by Pan Gongsheng. Two other central bank deputy governors, Zhang Qingsong and Xuan Changneng, were appointed in 2022. In October, Lan Fo’an was named finance minister. Vice premier in charge of finance, trade and economic matters He Lifeng assumed the head post of the Central Financial and Economic Affairs Commission (CFEAC) after Liu He. He Lifeng is also responsible for overseeing the daily operations of the CFC. The CFEAC, which takes its guidance from president Xi, is the party organ in charge of economic policy. Analysts note that technocrats have been replaced in many cases by Xi loyalists in recent appointments.

Efforts to fight corruption in the financial sector, which have been stepped up in recent years, have focused on government agencies and financial institutions. People arrested past two years on corruption charges include upper management of the central bank, the giant ICBC and Bank of China commercial banks and the policy bank China Development Bank. Much attention was given to the case of Sun Guofeng, former head of the monetary policy unit at the PBoC. Sun’s charges include leaking confidential information and insider trading. An anti-corruption campaign in the financial sector was launched in 2019. At the start of this year, president Xi again highlighted a need to deepen efforts especially on financial sector corruption crackdown. Several observers have reported that the anti-corruption push could subdue economic growth as financial institutions and regulatory officials have become skittish about conflicts with the party’s ideological pillars.

Show weekly Review 2024/01 Show weekly Review 2024/03