Xi Jinping Tightens Control Over China’s Financial System

To a man with a hammer, everything looks like a nail. Now, as China faces economic slowdowns, a real estate crisis, and heavy local government debt, Xi is once again wielding his hammer.

At the recent National People’s Congress (NPC), Xi introduced sweeping reforms to China’s regulatory framework, giving the CCP more direct control over financial policy and banking regulation. In the coming days, Xi’s loyalists are expected to be appointed to key regulatory positions, further solidifying CCP’s grip on the financial system.

These reforms align with Xi’s approach over the past decade: centralizing power within the CCP. As China’s economic growth slows, ensuring the financial sector aligns with his vision is crucial. Xi needs bankers to allocate funds according to government directives, prevent capital from flowing abroad, and avoid excessive lending that could jeopardize the financial system.

Last month, China’s top anti-corruption body issued a stern warning to bankers about ignoring the CCP’s leadership in financial work. This warning hints at structural reforms in financial regulation. The establishment of the new National Financial Regulatory Administration to oversee China’s massive financial system marks a significant shift in governance.

Heads are already starting to roll. Bao Fan, a prominent investment banker and chief executive of China Renaissance Holdings, vanished last month. After initially saying that it was unable to contact Mr. Bao, China Renaissance said it had learned that the banker was cooperating with an investigation being carried out by certain Chinese authorities.

By tightening control over the financial sector, Xi is guiding China further away from the market-driven economy that fueled its rise, towards a model where the CCP has an unchallenged influence over all aspects of the economy.

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