1 Central Financial Work Conference focuses on risk prevention and control
Oct. 30 to Oct. 31
The CCP authorities held the Central Financial Work Conference in Beijing. All members of the Politburo Standing Committee attended the meeting, as well as key personnel from relevant departments in the central government and local governments. Xi Jinping delivered a speech at the meeting and PRC vice premier He Lifeng made concluding remarks.
Notable content from the Central Financial Work Conference include:
- The meeting stressed that finance is the life blood of the national economy and an important part of the country’s core competitiveness. Therefore, it is necessary to build financial power, strengthen supervision, improve the financial system, optimize financial services, and prevent and defuse risks.
- The meeting recognized that since the 18th Party Congress and under Party Central’s centralized and unified leadership, the financial system has strongly supported the overall situation of economic and social development, resolutely fought the battle of preventing and defusing major risks, and made important contributions to building a moderately prosperous society in all respects and realizing the first centenary goal.
- The meeting noted that various contradictions and problems in the financial sector are intertwined and influencing each other. Some of these contradictions and problems are still very prominent, including the presence of still more implicit economic and financial risks, the quality and efficiency of financial services for the real economy being too low, the persistence of financial chaos and corruption, and financial supervision and governance capabilities being weak. The meeting then requested that the financial system improve its political stance and resolve to fundamentally resolve the aforementioned problems.
- The meeting emphasized the importance of adhering to and strengthening the Party’s overall leadership over financial work. “Xi Jinping Thought” should be adhered to as a guide to deepen supply side structural reform, purify financial teams, comprehensively strengthen supervision, prevent and defuse risks, persist in making progress while maintaining stability, coordinate development and security, hold the bottom line of not incurring systemic financial risks, and accelerate the construction of a modern financial system with Chinese characteristics.
- The meeting called for finance to serve the CCP’s socialist construction, including:
- Financing major strategies, key areas, and weak links (i.e. technological innovation, advanced manufacturing, green development, micro, small, and medium-sized enterprises, innovation-driven development strategies, and regional coordinated development strategies).
- Making cross-cyclical and counter-cyclical adjustments.
- Doing a good job in technology financing, green financing, financial inclusion, pension financing, and digital financing.
- Promoting the registration system for stock issuance and developing diversified equity financing.
- Promoting the development of the bond market.
- Supporting large state-owned financial institutions to become better and stronger.
- Serving the real economy and maintaining financial stability.
- Maintaining strict access standards and regulatory requirements for small- and medium-sized financial institutions.
- Attracting more foreign financial institutions and long-term capital to come to China for business development.
- The meeting stressed the need to comprehensively strengthen financial supervision and effectively prevent and defuse financial risks, including:
- Bringing all financial activities under supervision and severely cracking down on illegal financial activities.
- Handling the risks of small and medium-sized financial institutions in a timely fashion.
- Establishing a long-term mechanism to prevent and defuse local debt risks.
- Reasonably guiding expectations and preventing the resonance of risks across regions, markets, and borders.
- Improving the macro-prudential management of real estate finance, supporting “rigid” (剛性) and “improving” (改善性) housing demand, and accelerating the construction of the “three major projects” (transformation of urban villages, planning and construction of guaranteed housing, and dual-use infrastructure).
- Keeping the renminbi exchange rate basically stable.
- The meeting pointed out that Party Central should strengthen its centralized and unified leadership over financial work and give full play to the role of the Central Financial Commission.
- The meeting called for strengthening the adjustment of the total quantity and structure of the money supply. The meeting also called for expanding high-level financial opening up, servicing well “going global” (走出去) and “Belt and Road” (一帶一路) construction, and advancing the internationalization of the RMB in a prudent and solid manner.
Background
The Central Financial Work Conference (formerly known as the National Financial Work Conference) is a high-level meeting that sets the tone for the PRC’s major financial reform policies and direction that the CCP authorities hold every five years. The meeting was previously held in 1997, 2002, 2007, 2012, and 2017.
The highest-ranking PRC leaders that attended Central Financial Work Conferences before the one in 2017 were the premier and vice-premiers. The meeting in 2017, however, was attended by five members of the Politburo Standing Committee including Xi Jinping, the Supreme People’s Court president, the procurator-general of the Supreme People’s Procuratorate, as well as the heads of the Central Military Commission and the People’s Armed Police. Xi also mentioned for the first time at the 2017 Central Financial Work Conference that financial security is an important component of national security.
At the 2023 Two Sessions, the CCP established the Central Financial Commission, the Central Financial Work Commission, and the National Administration of Financial Regulation as part of Party and state institutional reforms. Further, the Financial Stability and Development Committee of the State Council and its office were dissolved and its functions were folded into the office of the Central Financial Commission.
Big picture
- The PRC’s official data for the first three quarters of 2023 appeared to indicate that China’s “troika” of growth drivers—exports, investment, and consumption—have stalled.
- The central government previously approved the issuance of 1.5 trillion yuan worth of special financing bonds and an additional 1 trillion yuan of treasury bonds, as well as allowed local governments to front-load part of their 2024 bond quota, to help local governments with their liquidity problems, stimulate the economy, and drag the Chinese economy to hitting the CCP’s targeted GDP in 2023 of “around 5 percent.”
Our take
1. The 2023 Central Financial Work Conference is heavily focused on risk prevention and control, with the word “risk” mentioned 19 times in state media’s nearly 3,200-character report on the meeting.
The language used and details available in state media reporting on the 2023 Central Financial Work Conference suggest that the PRC faces substantial financial risks. In particular, the meeting called attention to “various contradictions and problems in the financial sector that are intertwined and influencing each other.” Among the “very prominent” contradictions and problems include “still more implicit economic and financial risks” and “the persistence of financial chaos and corruption.” The meeting further indirectly acknowledged that illegal financial activities are taking place, the risks of small and medium-sized financial institutions, the seriousness of local government debt problems, as well as the potential resonance of risks across regions, markets, and borders.
The state media reporting on the 2023 Central Financial Work Conference also signals what Beijing is likely to do next to address some of China’s financial issues. For instance, the admission that the CCP authorities’ financial supervision and governance capabilities are “weak,” as well as the call for Party Central to strengthen its centralized and unified leadership over financial work, indicate that the Xi leadership will take more measures to tighten its grip over the financial system and sector. Meanwhile, the call for having finance support the acceleration of “three major projects” construction is almost certainly aimed at steering the regime away from a property sector “hard landing.”
The Xi leadership likely believes that it needs to step up financial risk prevention and control to more effectively guide funds to where they are needed (e.g., towards financing the CCP’s “major strategies, key areas, and weak links”), realize existing policies like “dual circulation,” and maintain regime stability and viability as the Chinese economy continues to see rapid deterioration and the PRC faces greater external pressure and export restrictions.
2. The 2023 Central Financial Work Conference’s call for Party Central to strengthen its centralized and unified leadership over financial work partly affirms our analysis in the Oct. 30, 2023 newsletter that Xi Jinping has yet to fully consolidate his control over the financial system, which is influenced by his factional rivals and other elite interests, and is now looking to double down on efforts to bring the financial system fully to heel.
Xi is likely hoping that he can better turn around his struggles to rescue the Chinese economy by “breaking through the barriers of the existing interest structure” (突破既有的利益格局藩籬; a phrase found in Party media) through the anti-corruption campaign and by wielding new Party institutions like the Central Financial Commission to direct financial work. However, Xi will almost certainly incur greater political risks by taking his anti-corruption and “self-rectification” campaign into so-called “deep water territory” in the financial system because he will inevitably tread upon and even uproot the interests and networks of influential Party elite who are opposed to him. We also believe that Xi is unlikely to gain greater governing ability and effectiveness to fix the PRC’s financial and economic problems even after tightening his control over the financial system and sector given the serious deficiencies of the CCP authoritarian system.
3. The 2023 Central Financial Work Conference’s call to “accelerate the construction of a modern financial system with Chinese characteristics” suggests that the CCP authorities are committed to eventually establishing a financial system that is separate from and will rival that of the dollar-centric international financial system. To that end, the CCP will continue to advance measures like the internationalization of the RMB and the Belt and Road Initiative, as well as strengthen or create global payment systems that make the PRC more able to weather Western financial sanctions.
The CCP’s effort to build up its financial system and establish itself as a financial power will inevitably result in an intensification of “new cold war” tensions and “great power competition” with the United States. If Washington moves to expose and counter the CCP’s financial ambitions quickly, like how the Trump administration went after the “Made in China 2025” policy and forced the regime to downplay it, then Beijing’s plan to construct a “modern financial system with Chinese characteristics” may never take off and the CCP regime will see another serious setback in its quest for global domination.
2 PLA warns against ‘Taiwan independence,’ slams the US after Xi-Biden summit is agreed ‘in principle’
PLA generals discuss Taiwan, US at the Xiangshan forum
Oct. 29
Lieutenant general He Lei, former vice president of the Academy of Military Sciences of the People’s Liberation Army, told nationalistic Party mouthpiece Global Times at the 10th Beijing Xiangshan Forum, “Once the Chinese government is forced to use force to resolve the Taiwan question, it will be a war for reunification, a just and legitimate war supported and participated in by the Chinese people, and a war to crush foreign interference.” He added that the responsibility for provoking such a war lies with “the Taiwanese authorities, ‘Taiwan independence’ secessionist forces, and external interfering forces.”
He Lei also said that the military relationship between the United States and the PRC is a crucial component of their overall relationship. He added that when the bilateral relationship is good, the military relationship will also be good, and vice versa.
On the topic of the PRC refusing to engage in regular military exchanges with the U.S., He Lei claimed that military relations had been “severely affected” because the U.S. has “continuously and seriously damaged China’s core interests, willfully undermined the political foundation of the bilateral relationship, crossed red lines and bottom lines, interfered in China’s internal affairs, instigated and supported ‘Taiwan independence.’” He also said that U.S. Defense Secretary Lloyd Austin had “missed the opportunity he had longed for” by not attending the Xiangshan Forum, and that his absence was revealing of his “sincerity.”
Oct. 30
In a keynote speech at the opening ceremony of the Xiangshan Forum, Central Military Commission vice chairman Zhang Youxia said that the PRC “advocates the ideas of respecting each other’s sovereignty and territorial integrity, respecting each other’s core interests and key concerns, respecting the development path and social system independently chosen by each country’s people, and valuing and giving consideration to other countries’ reasonable concerns on security and peace.”
Therefore, the PLA will “show no mercy” to those who support Taiwan independence. “No matter who wishes to separate Taiwan from China in any way, the Chinese military will never agree to it,” Zhang said.
Zhang said, “We will deepen strategic cooperation and coordination with Russia, and we are willing to develop military relations with the U.S. based on mutual respect, peaceful coexistence, and win-win cooperation.”
Zhang also made an oblique reference to the U.S. when saying that a “certain country” was interfering in the Asia-Pacific and in the internal affairs of other countries and instigating color revolutions. “Wherever its hands extend to, that is where peace and quiet is not possible,” he said.
Zhang added that the “certain country” artificially creates “a lot of geopolitical contradictions.” The “certain country” also “passes knives behind their backs and doesn’t hesitate to provoke proxy wars,” he said.
Agreement ‘in principle’ on Xi-Biden summit
Oct. 27
A U.S. official told the Associated Press that President Joe Biden and PRC leader Xi Jinping have agreed to meet on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco (Nov. 11 to Nov. 17). The official said that both sides have yet to work out the details of the meeting, including the meeting’s exact day, venue, and other logistics.
Oct. 28
1. A U.S. official told The Wall Street Journal that Biden and Xi have “an agreement in principle” for meeting at this year’s APEC summit. The PRC foreign ministry said, “The two sides agreed to work together to achieve a meeting of the two heads of state in San Francisco.”
Another U.S. official told the Journal that the consensus reached during PRC foreign minister Wang Yi’s meetings in Washington on Oct. 26 and Oct. 27 “fall short of an ironclad guarantee of a summit,” according to the report. The Journal reported PRC officials as saying that “Beijing is concerned that the U.S. might do something—such as approving an arms sale to Taiwan—that would embarrass Xi or make sitting down with Biden politically difficult at home” with three weeks to go before the APEC meeting.
2. Speaking to members of the U.S. strategic community in Washington, Wang Yi said that the road to the Xi-Biden summit would not be smooth and traveling there would not be on “autopilot,” according to a PRC foreign ministry statement.
Support for Japanese seafood
Oct. 29
The Group of Seven called for the “immediate repeal” of import bans on Japanese food products in a statement after a weekend meeting in Osaka. “We deplore actions to weaponize economic dependencies and commit to build on free, fair, and mutually beneficial economic and trade relationships,” the G7 trade ministers said in a statement. The G7 appeared to be referencing the PRC’s restrictions on Japanese seafood products in August after Japan started releasing wastewater from the Fukushima nuclear power plant into the ocean.
The PRC responded to the G7’s move by describing it as “economic coercion” and urging the G7 not to “stubbornly adhere to double standards.”
Oct. 30
Reuters reported that the U.S. is buying Japanese seafood in bulk to supply its military forces stationed in Japan.
U.S. Ambassador to Japan Rahm Emanuel said that the move is “going to be a long-term contract between the U.S. armed forces and the fisheries and co-ops here in Japan.” He added, “The best way we have proven in all the instances to kind of wear out China’s economic coercion is to come to the aid and assistance of the targeted country or industry.”
Emanuel said that the U.S. had not previously bought local seafood in Japan.
PRC honors ‘Flying Tigers’ veterans
Oct. 30
The CCP authorities welcomed and honored a delegation of “Flying Tigers” veterans in Beijing. The “Flying Tigers” were a volunteer force of U.S. pilots who helped defend China against Japanese forces in the 1940s.
PRC vice president Han Zheng said in meeting the delegation, which included former “Flying Tigers” Harry Moyer and Mel McMullen, that “The Chinese people always remember the heroic deeds of the Flying Tigers and we will never forget our old friends.”
Han added, “More than 80 years ago, China and America fought side by side in the battle against fascism, and the great story of the Flying Tigers carries the deep friendship forged with their lives and blood of the two peoples.”
Big picture
The Biden administration has engaged in “intense diplomacy” with the PRC while keeping up the pressure with moves like tightening restrictions on China’s ability to buy advanced semiconductors and repeatedly urging Beijing to align itself with the U.S. and its allies in condemning Russia and Hamas.
Meanwhile, the PRC’s domestic and external crises have continually worsened, including a noticeable economic decline, increasing signs of financial crisis, and a collapsing property sector.
Our take
The above developments suggest that despite the bellicose rhetoric and indirect criticisms, the Xi leadership is more willing to work with the Biden administration to improve the Sino-U.S. relationship than resort to aggressive behavior in the region.
First, the remarks on Taiwan by the senior PLA generals at the Xiangshan Forum do not exceed the usual CCP rhetoric regarding the regime’s “red lines.” The PRC likely believes that it has to continually warn the U.S. and other countries against supporting “Taiwan independence” to show that it is serious about the matter and to dissuade Taiwanese politicians from adopting the issue. Rather than a sign that the PRC is preparing imminent aggression against Taiwan, Zhang Youxia and He Lei appear to be carrying out verbal deterrence in the hopes that the U.S. and its allies think twice about using the Taiwan issue to provoke the PRC into an invasion that it is currently not capable of pulling off both militarily and economically.
Second, the PRC has signaled that it is willing to restore military-to-military engagements if the U.S. plays its part in thawing bilateral tensions. This is seen from lieutenant general He Lei’s remark that the military relationship will be good when the bilateral relationship is good, and vice versa. We wrote in the Oct. 26, 2023 newsletter that Xi Jinping could “resume to a partial or fuller degree the PLA’s bilateral engagements and military-to-military communications with the United States” in offering up concessions to Washington if he does eventually meet Joe Biden in San Francisco on the sidelines of the APEC summit. But if the Biden administration does not make similar guarantees to Xi regarding the PRC’s “core interests and key concerns” and follows up on those guarantees, then the small “improvement” in military-to-military engagements between the two sides at the Xiangshan Forum could prove to be a one-off as tensions resume.
The CCP has an incentive to improve Sino-U.S. relations so that it can buy time to resolve its serious domestic problems. The CCP is also likely looking to make good with the U.S. for the time being while it “delays and waits for changes” (i.e. the U.S. seeing major economic and financial problems, Washington being bogged down in the Russia-Ukraine war and the Israel-Hamas conflict, U.S. domestic political instability, etc.) to advance its world domination agenda and fulfill its vision of “the East is Rising, the West is in Decline.”
Third, Beijing could still walk away from a meeting between Xi Jinping and Joe Biden should the Biden administration push the PRC too hard or make moves that embarrass Xi. Beijing is not likely to be too bothered by the G7’s call to end import bans on Japanese seafood and the U.S.’s effort to bulk buy seafood products from Japan, but moves that the PRC perceives as crossing its “red lines” could lead Xi to not agree to meet with Biden at the APEC summit.
Whether or not a Xi-Biden summit takes place at this stage does not appear to be a game changer given that the U.S. and the PRC are prioritizing the safeguarding of national security over other issues, as well as being steadfast in their respective ideological stances. This means that any agreements or concessions made by either side at a hypothetical Xi-Biden summit or during other diplomatic meetings are unlikely to be binding unless the fundamental factors (national security and ideology) dividing the CCP regime and the U.S. are resolved.
