Strict financial control by Beijing spells more opportunities for Hong Kong
- As crucial meeting makes it clear China’s regulatory regime will only become tighter, the city stands to feel the benefit as being a bridge with the West
China’s central financial work conference convenes just twice in a decade to lay down future direction. Its importance cannot be overstated.
The two-day meeting just ended in Beijing is a landmark example. Nowhere in the official government account is there a mention of market reform, signalling a change of direction compared with the first three decades of China’s opening-up.
That is not to say China will go back to the pre-reform era but, instead, the focus is on strengthening financial risk management.
President Xi Jinping said this must be an “eternal theme”. The official statement referred to “chaos and corruption in the financial sector and poor quality financial services ill-matched to the real economy”.
China is still trying to defuse the property and local debt crisis. Externally the environment has never been so complex and hostile.
At the same time Beijing is concerned with the fragility of its financial system. China’s regulatory regime can only become tighter.
This marks a clear divergence between Chinese and Western schools of thought on financial policy that began to emerge ahead of the global financial crisis. Chinese leaders argue that a self-serving financial sector focusing on short-term interests may lead to disruption if not tightly regulated.
They also see that finance and banking can be weaponised with sanctions by the United States, threatening China’s national security. As a result China has veered off the market-centric path, prompting some Western scholars to recall the Maoist era.
In truth, it is a hybrid financial model that does not totally eliminate the market, but stresses the government’s supervision and guidance. The policy objectives are to maintain financial stability and divert valuable resources to areas considered key to overall development.
Preventing, resolving China’s financial risks are ‘eternal theme’: Xi Jinping
For Xi, these include hi-tech, green tech, advanced manufacturing and small and medium-sized enterprises. There are still many questions.
The clear divergence will raise concern and discussion in the West. But Xi said China needed to chart its own course.
It has its reasons for going in this direction.
Hong Kong emerges with enhanced standing as a global financial centre. The official statement said the central government would help the city consolidate its status.
Hong Kong business chiefs confident in economic rebound, city’s finance hub status
China will need a connector to link its economy with the rest of the world more than ever. As the bridge between a tightly controlled Chinese system and an outside world dominated by the West, the city will have a unique advantage.
But it needs to understand how best to make the most of it. For example, fintech innovation in China may be subject to greater oversight and regulation.
Hong Kong has a totally different regulatory system, which can create opportunities.
