27 February 2023
Enodo QuickTake
New Appointments and High-Profile Detentions Herald Finance Sector Shake-up
- Financial sector shake-up on horizon as new slate of leaders finalised
- New appointees are bureaucratic pragmatists, more inclined to enforce than to innovate
- High-profile detentions signal crackdown on wealthy financiers, and a new round of centralisation
- Xi Jinping's new economic and financial team are likely to shake up China's financial sector
- The supreme leader is anxious to prevent financial disorders; as the Party focuses on jacking up GDP growth after the end of its three-year zero-Covid regime
- Investors are stuck between a rock and a hard place. Monetary and liquidity developments favour Chinese equities, but Xi remains wedded to an economic model which gives the Party ultimate control over every aspect of the economy
- Xi's likely new team of financial regulators are more conservative and have a reputation of being strict enforcers of instructions by the Party-state apparatus. Wu Qing, the new chairman of CSRC, for example, was nicknamed the “broker butcher” for closing some 30 poorly regulated listed companies in the mid-2000s
- Yi Huiman is the leading candidate to replace Guo Shuqing as banking regulator, as heralded by Enodo Economics in December. A veteran of China’s financial system, Yi has overseen many different divisions at China's largest bank, ICBC. He has pushed for reforms including a new STAR market for high-tech listings in Shanghai, a comprehensive registration-based IPO system and for foreign banks to fully own their securities units in China
- Enodo has flagged China's "pro-growth pragmatism" as it tries to extricate itself from the economic damage wrought by its restrictive zero-Covid regime. But we still expect any measures to reflect Xi's statist ethos, and insistence on control from the center
- At the latest Politburo meeting, China’s top leadership drafted a plan to “deepen institutional reform in key areas of the party and government”. The plan aims to “make institutional setups adopt a more science-based approach and improve management efficiency, while optimizing the allocation of functions and refining operating mechanisms”
- We expect a significant shake-up of the financial sector, but we don't foresee the long-anticipated merger of the CSRC and CBIRC to happen. Instead, the Party plans to resurrect its Central Financial Work Commission to oversee all aspects of the financial sector
- The crackdown has been heralded by the detention of Bao Fan, founder and chairman of investment bank China Renaissance Holdings, on Feb 16th. Renaissance Holdings has been responsible for huge deals including the mergers and acquisitions of several well-known IT and fintech companies. Its stock plunged on the Hong Kong Stock Exchange the next day
- A few days earlier, Qu Dejun, vice-chairman of another Hong Kong-listed company, Seazen Group, one of China’s largest property developers, also went missing. Several Chinese news outlets said Qu’s disappearance had to do with police investigations of the Dalian Wanda Group, a well-connected developer where Qu had held senior positions
- Several other heads of privately-owned conglomerates have also “disappeared,” our sources say. In most cases, these multi-millionaires have been snapped up by agents of the Central Commission for Discipline Inspection (CCDI), the party’s anti-corruption body. The CCDI has no obligation to disclose the reasons for their detentions, nor to notify family members where the suspects are held
- Like the recent tech-sector crackdown, the coming financial sector shake-up is motivated by Xi's "common prosperity". Poorly regulated financial institutions, including fintech and platform vehicles, have results in the amassing of huge fortunes by a few finance whizzes, at the expense of the welfare of the Party-state and ordinary citizens
- We will get a better sense of the overall direction of travel for China's economy as the rest of the top economic and financial sector appointments become clear following the National People's Congress (NPC) due to start March 5th. Western investors would be wise to assume a bumpy ride ahead