First published: Financial Times, 31/05/2017
The authorities reckoned that doing nothing was worse than trying to restore order
The financial crackdown in China in the past three months flies in the face of the conventional wisdom that nothing would be allowed to happen to rock the boat ahead of the important 19th Communist party congress later this year. There is no doubting the serious intent of the regulatory squeeze, but it may nevertheless not persist. The catalyst for the crackdown was probably President Xi Jinping’s personal support for co-ordinated measures and edicts by the main regulatory agencies: the People’s Bank of China and the banking, securities and insurance regulatory commissions. The heads of the securities and banking commissions were replaced by reform-minded and highly respected people. In April the head of the insurance commission was placed under investigation for violations of party discipline, and fired…..Read more:
30th May 2017
Pretty much since the start of 2017, something has been stirring in China’s financial markets. The effects are now becoming more evident. In a nutshell, China has moved – contrary to all the expectations people had that nothing extraordinary would be allowed to happen in this, the year of the important 19th Communist Party Congress – to crack down on regulatory abuse, speculation, leverage and other forms of financial excess. The results may not be fully transparent for a while, and the outcome, if past performance is anything to go by, is liable to be cold feet if and when a the squeeze starts to exacerbate and an already slowing economy.
Nevertheless, whatever it is the authorities are up to is serious, it’s already changing behaviour and it is slowing down the momentum of lending in shadow banking. If the government should ever choose the timing of the eventual denouement of debt, then one day – though probably not this year – this kind of regulatory toughness will link up with macroeconomic tightening to put Chinas credit genie back in its bottle. A proper deleveraging will begin.
Curiously, but not uniquely, what China is doing is both more and less than it seems. It is more than a regulatory crackdown, because it chimes very well with President Xi Jinping’s anti-corruption campaign, which hasn’t really reached into the bowels of the finance sector before, though it has been in a lot of other places in the Party, PLA and SOE sector. The progeny and relatives of a lot of senior leaders, including on the Politburo Standing Committee, work in finance and will doubtless be affected by the shockwaves of arrests, investigations and new restraints in the banking, securities and insurance sectors. How fortuitous for Xi, then, that months before he delivers his political report at the 19th Party Congress, some of his opponents or adversaries are going to feel the chill of his political reach, if not the knock on the door from the Central Commission for Discipline Inspection that runs the anti-corruption campaign. Read more ›