China warns ‘hedonistic’ bankers to toe the line

Tough measures: The headquarters of China Renaissance in Beijing. Billionaire Bao’s disappearance sparked fears of a renewed crackdown on the nation’s financial services industry. — AFP

BEIJING: Bankers in China are being told to rectify their mindsets, clean up their “hedonistic” lifestyles and stop copying Western ways.

The directives, part of a 3,500-word commentary last week from the country’s top anti-graft watchdog, is just the latest sign that President Xi Jinping’s campaign to tighten the Communist Party’s grip on the financial system has a long way to go.

As the National People’s Congress kicks off this weekend, Xi is poised to further entrench control by reviving a powerful committee to coordinate economic and financial policy and installing close allies to oversee it all.

That comes on the heels of the sudden disappearance of one of China’s top investment bankers and follows the downfall of dozens of officials over the past 18 months in the most sweeping corruption crackdown on the financial sector ever.

In its warning last week, China’s Central Commission for Discipline Inspection said bankers should abandon pretensions of being the “financial elite.”

“All of these developments speak to one thing: the Communist Party will govern everything, including economic and financial work,” said Shen Meng, a director of Beijing-based investment bank Chanson & Co.

“Policy makers are placing the finance industry at the heart of the economy as a lubricant for its smooth development, and if the economy goes sour, the sector is mainly to blame.”

This is a critical moment for Xi as he seeks to reign in risks in the US$60 trillion (RM269 trillion) financial sector – imposing stricter controls on capital outflow, controlling debt levels and ruling out risky practices – while he tries to restore growth and manage the economic fallout of spiralling ties with the United States.

Aiming criticism at the industry may well provide Xi with convenient cover if that doesn’t go smoothly.

The National People’s Congress – where top leaders will assess the government’s past performance and outline policies for the year ahead – offers Xi his first opportunity to shake up state institutions since he secured a precedent-breaking third term at the party’s twice-a-decade congress.

China’s top leaders have typically used the first parliament meeting after a congress to reorganise critical government organs. In 2018, Xi carried out the most extensive overhaul in decades in a revamp that solidified his control over key functions.

Authorities are considering reviving the long-disbanded Central Financial Work Commission to allow the ruling Communist Party to assert more control, according to people familiar with the matter.

The commission is set to be headed by Ding Xuexiang, Xi’s chief of staff, one of the people said. He Lifeng, who is expected to become China’s new vice-premier, is also being considered for the role of party secretary at the People’s Bank of China, according to the Wall Street Journal.

As part of changing of the guard, the nation’s securities regulator is poised to get a new chairman nicknamed “the broker butcher,” people familiar with the matter said earlier.

Wu Qing, a vice-mayor of Shanghai, earned his reputation cracking down on wayward traders while at the regulator in the mid-2000s, shuttering 31 firms.

At the same time, the financial industry has been rocked by the disappearance of Bao Fan – who oversaw some of the nation’s biggest tech deals over the past decade.

Bao is cooperating in an unspecified probe by Chinese authorities according to China Renaissance Holdings Ltd, the investment bank he heads up.

The Wall Street Journal reported yesterday that the banker had been detained as part of a corruption probe.

Then this week, after an investigation that started last year, China’s top prosecutor charged Tian Huiyu, the former president of China Merchants Bank Co, over allegedly taking “huge” bribes, the abuse of power and insider trading.

That turmoil is giving global investors another reason to be cautious about the longer-term prospects for China’s markets.

The rip-roaring rally on China’s reopening has stalled with key benchmarks in Hong Kong falling as much as 15% since January. China’s technology stocks have lost up to a combined US$263bil (RM1.18 trillion) in market value in the same time.

One recent encouraging development – a landmark deal by the US and China to end an impasse over access to audit papers of Chinese firms listed in New York – is also being questioned as authorities in Beijing have put pressure on its state-owned corporate giants to end ties with the Big Four global accounting firms.“Investors are stuck between a rock and a hard place,” said Diana Choyleva, chief economist at Enodo Economics, a London-based research firm focused on China.

“Liquidity developments favour Chinese equities, but Xi Jinping remains wedded to an economic model which means the party has ultimate control over every aspect of the economy,” and China remains at risk of falling foul of US sanctions against Russia, she said.Keeping a tight lid on capital outflows also remains a priority for authorities trying to prevent China’s wealth leaving the country as they get the economy back on its feet. — Bloomberg