Xi Jinping’s plan: China to be a fierce financial powerhouse, beware!

TLDR:

• President Xi Jinping has laid out a road map for China to become a “financial superpower,” stating that it must have world-leading economic, technological, and national strength.
• Xi emphasized the importance of preventing systemic financial risk and called for stronger cooperation between financial regulators and industry authorities.
• He also pledged further measures against corruption to facilitate a comprehensive de-risking campaign in the financial sector.
• China will focus on enhancing its competitiveness and influence on international rules, promoting financial opening-up and improving financial support for the Belt and Road Initiative.
• Concerns over China’s financial system have been raised due to an exodus of foreign capital, weak yuan, and mounting local government debt.
• The authorities have reshuffled the regulatory regime and are guiding selected banks in channeling credit to strategic sectors.

President Xi Jinping has outlined a road map for China to become a “financial superpower,” emphasizing the need for world-leading economic, technological, and comprehensive national strength. The goal of becoming a financial superpower was first presented at the central financial work conference two months ago. While long-term work is required, Xi also highlighted the importance of preventing systemic financial risk and called for stronger cooperation between financial regulators and industry authorities.

Xi stated that a financial superpower should have a strong economic foundation and stressed the importance of fundamentals, including a strong currency, central bank, and domestic and international financial institutions. He also called for strong supervision, talent, and the emphasis on financing support for the real economy. Xi further emphasized the need for financial regulation to have teeth and for corruption and moral hazard to be resolutely punished and strictly prevented.

China will focus on enhancing its competitiveness and influence on international rules, promoting “high level” financial opening-up, and improving financial support for the Belt and Road Initiative. The country has faced multiple financial challenges in the past year, including an exodus of foreign capital, a weak yuan, and mounting local government debt. In response, the authorities have reshuffled the regulatory regime and established a Central Financial Commission to oversee the industry.

Fitch Ratings has warned that many Chinese banks are experiencing heightened capital pressures, including some systemically important banks. The ratings agency expects the authorities to continue a targeted credit allocation approach, with regulators guiding selected banks in channelling credit to strategic sectors, in order to maintain systemic stability and resolve risks at small and medium-sized banks.