China’s Xi Jinping lays out road map for becoming ‘financial superpower’ – but warns risk can throw efforts off-track

At a top-level meeting, President Xi Jinping put forward a definition of a ‘financial superpower’ and laid out how China can become one
Plan elaborates on goals first set out at financial work conference last year, emphasises institutional strength, government coordination

Banking & finance

Amanda Lee

Published: 10:00pm, 16 Jan 2024

Why you can trust SCMP

President Xi Jinping on Tuesday laid out a concrete definition for how China would become a financial superpower and called its system “distinct from Western models”, two months after the goal was presented at the central financial work conference.

However, the world’s second-largest economy faces more urgent tasks in its efforts to defuse rising financial risk, he said during a high-level meeting at the Central Party School in Beijing.

“A financial superpower should be based on a strong economic foundation,” Xi was quoted by state outlet Xinhua as saying. “It must have world-leading economic, technological and comprehensive national strength.”

Six of the powerful seven-member Politburo Standing Committee attended the event, along with dozens of provincial leaders. Premier Li Qiang, the other standing committee member, was absent due to a trip to the World Economic Forum in Switzerland.

Major differences from the Western models, Xi said, include the Communist Party’s leadership and the emphasis on financing support for the real economy.

He also stressed fundamentals, saying a strong currency, central bank, financial institutions both domestic and international are key to superpower status, as well as strong supervision and talent.

Financial regulation must have teeth … corruption must be resolutely punished and moral hazard must be strictly prevented

Xi Jinping

While long-term work is required to become a financial superpower, Xi said, he also emphasised the importance of preventing systemic financial risk, adding financial regulators and industry authorities must clarify their responsibilities and strengthen cooperation.

“Financial regulation must have teeth,” he said. “All localities must plan for the overall situation based on one region and practise risk management and stability maintenance.”

The president also pledged further moves against corruption to facilitate a comprehensive de-risking campaign. “In the process of risk management, corruption must be resolutely punished and moral hazard must be strictly prevented,” he said.

Amid property slowdown, China seeks to bolster rental housing market

China will focus, he said, on enhancing its competitiveness and influence on international rules, promoting “high level” financial opening-up.

“[We will] streamline restrictive measures, enhance the transparency, stability and predictability of our policy, and regulate overseas investment and financing activities, improving financial support for the Belt and Road Initiative,” he said.

Beijing is concerned over the fragility of its financial system, particularly as China faces an increasingly turbulent geopolitical environment and grapples with debt crises in the property market and local governments.

Over the last year, China has struggled with multiple financial challenges, including an exodus of foreign capital. The yuan has remained weak against the US dollar, although its exchange rate has stabilised since late last year.

10:57

Boom, bust and borrow: Has China’s housing market tanked?

The authorities have responded by reshuffling the regulatory regime, with a Central Financial Commission set up to oversee the multi-trillion dollar industry.

A vast majority of China’s banks, securities houses and insurers are controlled by governments at different levels.

Mounting local government debt has also triggered concerns over regional economic prospects and a potential spillover to the banking sector, which has significant exposure and can be sensitive to economic cycles.

Fitch Ratings said last week that many Chinese banks are seeing heightened capital pressures, including some systemically important banks.

“We expect the authorities to continue a targeted credit allocation approach, with regulators guiding selected banks in channelling credit to strategic sectors, especially given the government’s focus on maintaining systemic stability and pushing forward risk resolutions at small and medium-sized banks,” the international ratings agency said in a report.