To Rein in China’s Banks, Xi Uses Familiar Playbook

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.

Last month, China’s top prosecutor charged Tian Huiyu, the former president of China Merchants Bank, one of the country’s biggest commercial lenders, with abuse of power and insider trading. When he was expelled from the Communist Party in October, the party said in a statement that Mr. Tian had led “a corrupted life with loose morals” for accepting lavish gifts as well as invitations for banquets, travel and golf.

The pointed rhetoric, targeted oversight and crackdowns on high-profile figures are reminiscent of China’s so-called rectification campaign of the last few years in the technology sector. This resulted in huge fines, the upending of business strategies and tycoons driven underground.

But unlike the technology industry, which had been flying high and amassing greater influence in society, the financial sector is under tremendous pressure partially because of the shaky balance sheets of local governments and the banks that lend to them. ANZ Research estimates that Chinese local government debts have grown 16 percent annually over the last five years.

After three years of footing the bill for China’s strict “zero Covid” policy of constant testing, local government finances are depleted, a situation worsened by a property market collapse that has diminished a once-reliable revenue stream from leasing state-owned land to real estate developers.

On Friday, China’s legislature, known as the National People’s Congress, approved a proposal to create a new regulatory body called the State Bureau of Financial Supervision and Administration to oversee China’s 400 trillion yuan, or $57 trillion, financial system. The new entity was formed out of China’s existing banking and insurance regulatory commission, and it will absorb some roles played by other agencies including the central bank and the securities regulator.

Article source: https://www.nytimes.com/2023/03/14/business/china-xi-jinping-banks.html