1 Xi finally embarks on post-Third Plenum inspections
Xi inspects northwest China
Sept. 11
Xi Jinping traveled to northwest China for inspections. He visited Baoji City in Shaanxi Province, as well as Tianshui City and Lanzhou City in Gansu Province.
In Tianshui City, Xi toured the Fuxi Temple (a temple dedicated to Fuxi, who is considered to be the first ancestor of the Han Chinese and legendary primordial ruler of China) and the Maijishan Grottoes (well-known Buddhist grottoes).
Sept. 12
Xi Jinping presided over a symposium on comprehensively promoting ecological protection and high-quality development in the Yellow River Basin in Lanzhou City. CCP General Office director Cai Qi and State Council vice premier Ding Xuexiang also attended the symposium.
In a speech, Xi reiterated parts of the policies introduced at the Third Plenum of the 20th Central Committee. He also put forward requirements concerning the ecological protection and governance of the Yellow River Basin, as well as protection of and archaeology on the cultural and natural heritage in the area.
In concluding, Xi emphasized that all regions and departments should conscientiously implement Party Central’s deployment of economic work and major initiatives, focus on economic work at the end of the third quarter and in the fourth quarter, and strive to achieve the annual economic and social development goals and tasks.
Backdrop
1. Political rumors and speculation unfavorable to Xi Jinping have been circulating in overseas Chinese-speaking circles before, during, and after the Third Plenum period in late July 2024. The rumors include claims that Xi was suffering from serious health issues and was being forced out of power.
2. Global investment banks, including those on Wall Street, recently revised their forecast for China’s economic growth for 2024 to below the about 5 percent figure targeted by Beijing.
Our take
1. Xi Jinping’s recent inspections in northwest China appear to partially affirm some of our earlier analyses.
State media photos and footage of Xi doing his inspections show him to be in relatively good health. This is contrary to the persistent political rumors claiming that Xi is seriously ill and incapacitated. Those rumors gained an extended “shelf life” and “credibility” because Xi did not immediately embark on inspection tours in the localities after the conclusion of the Third Plenum, a departure from tradition. We wrote at the time that Xi’s inspections could have been delayed as he and other senior leaders were still at the annual Beidaihe work vacation. We also noted that the Xi leadership could have been waiting for local authorities to get a handle on various natural disasters at the time (heavy rain and floods in southern China and heat waves in the northern regions) before inspecting the localities to avoid drawing attention to governance failures.
Meanwhile, it is noteworthy that Xi offered little in his speech in Lanzhou City on how his leadership plans to boost China’s economy. Instead, Xi merely urged the localities to implement Party Central’s deployment of economic work and major initiatives, focus on economic work for the second half of the year, and endeavor to hit Beijing’s annual economic targets. This appears to align with our assessment after the Third Plenum that the Xi leadership “is at a loss at how to deal with the various challenges and risks facing the CCP regime both domestically and internationally.” Unless Beijing has a brainwave on economic matters or enacts dramatic measures to stimulate the economy, the current official data suggests that it is highly unlikely China will actually hit the CCP’s target of around 5 percent GDP growth (Beijing will still report “around 5 percent” GDP growth next year; whether they can convince observers is another question).
2. Officially, Xi Jinping visited Fuxi Temple and Maijishan Grottoes to “learn about the protection and preservation of local cultural heritage” in Tianshui City. This is aligned with longtime CCP propaganda and united front tactics where Party leaders and officials give the appearance of being China’s cultural and religious “guardian” even as the Party denigrates and destroys authentic Chinese culture, while persecuting religious groups and their believers.
In considering the significance of those places, traditional Chinese spiritual beliefs, Xi’s early interest in religion and the Xi clan’s ties to Buddhism, and the crises current facing the CCP regime, the PRC leader might have an alternate ulterior motive in making those places one of the first stops of his post-Third Plenum inspection tour.
The CCP is officially atheist and discourages officials and the Chinese people from practicing religion. But many Party leaders and officials are often privately religious or hold some belief in Chinese spirituality and superstition. For instance, Mao Zedong consulted a Daoist priest in 1949 near the end of the Chinese Civil War to inquire about auspicious dates for entering Beijing, his future, the stability of his regime, and his lifespan. Mao later opted to reside in Zhongnanhai instead of taking up staying in the Forbidden City after another Daoist priest told him that the “residence of emperors should not be entered.”
After taking office in the aftermath of the Tiananmen Square Massacre, Jiang Zemin turned to feng shui to ensure the longevity of his rule. Jiang would add water to the Baiyangdian Lake, lengthen the flagpole at Tiananmen Square, and relocate the Earth Mound at the Temple of Heaven. In 2001, a Hong Kong magazine reported that Jiang began praying to Kṣitigarbha Bodhisattva for protection and hand copying the Kṣitigarbha sutra because he feared going to hell after accumulating a blood debt for persecuting Falun Gong. During the Xi era, the anti-corruption authorities would often implicate purged officials, including senior cadres like Zhou Yongkang and Guo Boxiong, for engaging in “superstitious” activities.
Xi Jinping himself has some interest in religion. According to U.S. diplomatic cables published by WikiLeaks, Xi was “quite taken with Buddhist mysticism” at one point in his career. Xi was fascinated with “Buddhist martial arts, qigong, and other mystical powers said to aid health, as well as with Buddhist sacred sites such as Wutaishan,” but the cable added that it was unclear whether he was actually religious or looking for ways to maintain his health. When Xi was deputy Party secretary of Zhengding County in Hebei Province, he reportedly frequented the local Linji Temple. After he was elevated to Party secretary the following year, Xi agreed to reopen the Linji Temple to the public and help the temple clear government hurdles related to fundraising for reconstruction.
Xi’s family appeared to have an affinity for Buddhism. Xi Zhongxun got on well with the 14th Dalai Lama, who described the elder Xi as “very friendly, comparatively open-minded, very nice” and gave him an expensive watch. The Dalai Lama said he only gave watches to PRC officials he felt close to, and Xi Zhongxun was said to be wearing the watch several decades later. Xi Zhongxun also served as the CCP’s liaison to the 10th Panchen Lama from 1952 to 1962 and often invited the latter to his home as a guest. When the elder Xi was put in charge of Guangdong Province from the late 1970s to early 1980s, he restored to Nanhua Temple the mummified remains of the Zen Buddhist Sixth Patriarch that Red Guards had partially destroyed and buried during the Cultural Revolution. Finally, a 2017 New York Times report noted that the Central Committee issued an 11,000-character report in 1982 when Xi Zhongxun was in charge of religious work warning Party members against banning religious activities, as well as calling for temples, mosques, and churches to be restored, and religious professional to be “rehabilitated.” Meanwhile, Xi’s mother Qi Xin is believed to be a Buddhist and was buried with Buddist rites, and Xi’s wife Peng Liyuan is said to have a Tibetan Buddhist master. The Xi family’s affinity for Buddhism is likely to have an influence on Xi Jinping.
At this juncture, it should be noted that the personal beliefs of Party leaders and their family members only play a very minor role in moderating the atheist CCP’s stance on and treatment of religion. For instance, the Party has an interest in “protecting and preserving” religious and cultural sites because doing so brings in tourist dollars and helps it promote the fiction that it is China’s cultural and religious “guardian.” However, the Party has no qualms about persecuting religious practitioners, particularly those who are not part of state-controlled religious organizations, as it continually strengthens its control over society and upholds state atheism. This is why religious persecution has persisted throughout the PRC’s history even when CCP leaders and senior officials privately hold religious or spiritual beliefs.
Assuming Xi has some degree of faith in religion and Chinese spirituality, he could have visited Fuxi Temple and Maijishan Grottoes partly to seek inspiration and blessings from a higher power to resolve the many serious crises facing the CCP regime. Buddhists in China believe that building temples and restoring Buddha statues bring blessings and accumulate good karma. Xi’s visit to the Maijishan Grottoes and call to “protect and preserve local cultural heritage” would broadly fall under the category of deeds that “merit” blessings and good karma.
Concurrently, Xi could be tapping the Chinese people’s belief in religion and spirituality to boost his “quan wei” by associating himself with the trappings of ancient political legitimacy. For instance, a Xinhua photo shows Xi conversing with officials next to stone carvings of the Hetu and Luoshu diagrams at the Fuxi Temple. Per traditional Chinese culture, Heaven will bestow the auspicious signs of Hetu and Luoshu to virtuous rulers who govern well to signify that they have the “mandate of heaven” and legitimate authority to rule. Given the increased exposure of governance failures and the severe problems plaguing the PRC, Xi would undoubtedly want to signal that he still has the “mandate of heaven,” as well as hope that the “devotion” shown at the religious sites would improve his fortunes.
2 Wave of securities firm mergers, executive resignations, and financial sector probes hint at growing risks
‘Merger wave’ among securities firms
Sept. 5
Guotai Junan Securities and Haitong Securities announced that they would be merging. Under the agreement, the smaller Haitong will come under Guotai Junan, and the latter will issue shares to be listed on the Shanghai Stock Exchange to holders of Haitong’s A-shares and do likewise in Hong Kong with H-shares. The merged company also plans a placement of new A-shares for ancillary fundraising. Both Guotai Junan and Haitong suspended trading in Shanghai and Hong Kong starting Sept. 13.
Guotai Junan and Haitong are both partly owned by the Shanghai State-owned Assets Supervision and Management Commission. The merger of the firms will create a new entity with assets of 1.6 trillion yuan that surpasses Citic Securities as the largest brokerage. This is also the first combination of top-tier securities companies since the implementation of Beijing’s “new nine provisions” to guide the “high-quality development of the capital market” in April 2024.
Sept. 7
The state-run Securities Times reported that at least 10 securities firms were involved in the current wave of mergers since the start of the year, citing incomplete statistics. There were also significantly more mergers in 2024 than in previous years.
The companies include:
- Guotai Junan and Haitong Securities
- Guosen Securities and Vanho Securities
- Guolian Securities and Minsheng Securities
- Zheshang Securities and Guodu Securities
- Western Securities and Guorong Securities
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The Central Financial Work Conference in November 2023 called for establishing China as a “financial power,” “cultivating world-class investment banks and investment institutions,” and “supporting large state-owned financial institutions to become stronger and better.”
The “new nine provisions” introduced in April 2024 proposed supporting leading financial institutions in “enhancing core competitiveness through mergers, acquisitions, restructuring, and organizational innovation.” The China Securities Regulatory Commission also issued a series of policy documents that set the goal of “forming two to three internationally competitive and market-leading investment banks and investment institutions by 2035.”
Top 10 fund manager seeks return of excess pay from staff
Sept. 4
Reuters reported that China Merchants Fund Management, a top 10 Chinese fund manager, had asked its senior executives to return pay received from 2019 to 2023 that went beyond a 3 million yuan cap imposed this year, according to two people familiar with the matter.
China Merchants Fund Management is the first Chinese-foreign joint venture approved by the China Securities Regulatory Commission and one of the largest state-owned conglomerates.
Financial sector resignation wave
Sept. 7
Mainland media Caitong News reported that A-share listed companies announced over 1,100 resignations during the 27 working days from August to September 7 (40 resignations per day), citing incomplete statistics. Caitong News added that a significant number of these resignations were executives from financial institutions.
Sept. 11
Du Wen, a former deputy director of the Inner Mongolia Legislative Affairs Office’s legal advisory office, revealed in his self-media program that he learned from sources in mainland China that many financial executives are collectively resigning from their jobs. He added that several members of management teams at some financial institutions tendered their resignations together. Common reasons cited for resigning include personal reasons, excessive work pressure, and not wanting to hinder the organization. However, the vast majority of executive resignation requests have not been approved due to the central government’s concerns about maintaining financial stability.
Du believes that those financial executives likely know that their respective financial institutions have become “financial volcanoes” that are on the verge of eruption. Those executives likely believe that remaining in their position is bad for their safety as they could be targeted in upcoming anti-corruption investigations.
Financial executives targeted
Sept. 10
Mainland media Yicai reported that at least 67 individuals in China’s financial sector have been investigated to date in 2024, citing incomplete data from the Central Commission for Discipline Inspection website. The 67 individuals include two officials under central management; 53 officials from central Party and state agencies, state-owned enterprises, and financial institutions; and 12 officials under provincial management.
Sept. 11
Bloomberg News reported that the CCP authorities are targeting investment bankers.
Bloomberg noted that at least three top investment bankers from different securities companies have been detained by the authorities since August 2024, “sending a chill through the industry.” One of the bankers, who used to oversee dealmaking at Haitong Securities, fled the country but was arrested overseas and repatriated back to China.
People familiar with the matter told Bloomberg that Haitong and other state-backed brokerages recently asked many of their investment bankers to surrender their passports and seek permission for all business and personal travel plans. Those brokerages were following private guidance from PRC regulators, the people said.
The people said that some employees were told that regulators are scrutinizing initial public offerings and other capital-raising activities, and that bankers could be summoned for questioning at any time. The people added that brokerages have tightened approvals for overseas trips and told employees that they need to seek approval if they want to resign. Employees who obtain approval for business travel have to do so with a co-worker and activities outside of pre-approved itineraries would be restricted, one of the people said.
Bloomberg said China has more than 8,700 investment bankers across 147 brokerages as of early September 2024. Many of these bankers are involved in capital markets activities like follow-on share sales and IPOs. Official data shows the combined revenue of securities firms in China amounting to 203.3 billion yuan in the first half of 2024, a decline of 9 percent from the previous year.
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In April 2024, the 20th Central Committee completed the deployment of the third round of inspections, with 15 inspection teams set to conduct regular inspections of 34 economic departments and financial institutions. The departments and institutions inspected include the Export-Import Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, China Life Insurance, and China Taiping Insurance.
Evergrande-linked wealth manager probed
Sept. 11
The Fengxian branch of Shanghai’s public security bureau announced that it had launched a criminal investigation into Hywin Wealth for suspected illegal fundraising. The bureau added that two suspects surnamed Han and Wang had been detained for illegal fundraising, but did not disclose the sum involved.
Mainland media reported that 24 issuers were involved in Hywin’s overdue wealth management products, the total amount of overdue funds in excess of 71 billion yuan and affecting nearly 50,000 high-net-worth individuals. All of Hywin’s financial products were found to be in violation of regulations and the company had controlled dozens of shell companies to build a “nested capital pool” (嵌套資金池) of over 70 billion yuan.
Mainland media added that Hywin’s financial report showed that the company had 185 wealth management centers in 91 cities across China and employed 1,749 financial advisers as of June 30, 2023. Hywin’s 2021 NASDAQ listing prospectus described it as “China’s third-largest and fastest-growing third-party wealth management service provider” and the “largest provider of real estate fixed-income products in China.” The prospectus also noted Hywin’s good business relations with China Evergrande and Sunac, as well as how the funds it raised were invested into the two developers’ property projects.
Hywin Wealth is part of the so-called “Hywin empire,” which includes two other listed companies Hywin Holdings and Yanshi Co. The “Hywin empire” is involved in wealth management, micro-lending, guarantee companies, online financial platforms, and the liquor business.
Our take
1. The wave of securities firm mergers, financial executives being asked to return salaries, and the expanding anti-corruption drive in the financial sector appear to be part of Xi Jinping’s agenda to strengthen the Party’s control over the financial sector, eliminate the lingering influence of factional rivals, defuse financial risks, and transform the PRC into a “financial power.”
i) There are several reasons why Beijing is promoting the merger of securities companies.
First, the CCP authorities are acting in accordance with the direction set at the 2023 Central Financial Work Conference and in other policy documents to make Chinese investment banks more competitive against foreign financial firms, especially those expanding in China like Goldman Sachs, JPMorgan Chase, and BNP Paribas. The merger of investment banks is one way to make them stronger and have more ability to compete against internationally prominent firms.
Second, Beijing could be looking to defuse and conceal financial risks through mergers. Financial risks in the securities industry have been bubbling to the surface in recent years as firms see declining revenue and net profits. The financial reports of 50 A-share listed securities firms show a total operating revenue drop of 12.5 percent from a year ago to 246.27 billion yuan in the first half of the year. Forty of the 50 companies reported a year-on-year decrease in total operating revenue. Meanwhile, the total net profits of those companies fell by 21.2 percent to 68.4 billion yuan. The merger of smaller and riskier securities companies with larger firms could help to prevent the exposure of financial risks.
Third, the Xi leadership could be using mergers and acquisitions as a way to clean out the financial sector and consolidate power. Mergers could bring the financial assets of Xi’s factional rivals or other influential elites under his control, and better prevent efforts by “anti-Xi” forces to carry out a “financial coup” against the Xi leadership like in 2015.
ii) Financial executives are likely being asked to return “excess pay” to help struggling financial institutions cut their losses. The move is also in line with Beijing’s “common prosperity” policy, and appears to partly be a way of appeasing investors who suffered significant losses due to various reasons (fraudulent financial products, underperforming markets, etc.) in recent years.
iii) The expansion of the anti-corruption campaign in the financial sector allows Xi Jinping to clean up the mess left by his predecessors and hold financial elites accountable for putting their personal interests before those of the regime. The purge of financial executives also paves the way for Xi to replace them with his allies and loyalists, and tighten his grip over the financial system and sector.
2. The growing anti-corruption efforts in the financial sector and the financial “resignation wave” suggest that things could be approaching a critical point in China.
The financial sector purge has intensified steadily since Xi Jinping consolidated power to a very high degree at the 20th Party Congress. For example, two officials under central management have been investigated so far this year as compared to just one in the first half of 2023. Also, 53 officials from central Party and state agencies, state-owned enterprises, and financial institutions have been probed thus far this year, compared with 48 in the first half of 2023. The uptick in financial officials being investigated hints at widespread financial irregularities and a high level of financial risk in China. Xi’s hardline policies and purges are likely to accelerate the exposure of financial risks in China.
Meanwhile, the “resignation wave” in the financial sector is likely the outcome of intensifying financial sector purges and a reflection of financial risks nearing a breaking point in China.
Executives familiar with China’s actual financial situation are inclined to head for the exit if they believe that a severe financial crisis is fast approaching or is already underway. These executives do not want to be made scapegoats when the financial situation unravels, and are likely looking to “cash in” and leave the responsibility of the financial mess to their successors instead of staying on the job to mitigate risks. However, most of these executives may not be able to leave if the central government does not approve of many resignations.
China has been heading towards a financial meltdown for some time. A massive financial bubble was created by the policies of Xi’s predecessors and policies under Xi, including measures promoting “financial innovation,” “Internet Plus” initiatives, and P2P lending. Those policies, combined with poor government regulations, led to widespread financial fraud. China’s rapid economic downturn and the collapse of the real estate sector in recent years have only made matters worse, including triggering the failure of financial products.
