A quick review Xi Jinping's speech on the development of China's financial sector
The path for financial development with Chinese characteristics is different in nature from the mode of Western financial development.
Good evening. Towards the end of one year and the start of another, China typically holds many significant meetings. In today's piece, I will focus on Xi Jinping's speech on the development of China's financial sector, delivered at the opening ceremony of a study session attended by provincial and ministerial-level officials on Tuesday.
The study session was opened at the Party School of the Communist Party of China (CPC) Central Committee (the National Academy of Governance). The Party school organizes a number of study sessions every year, of which attended by principal officials at the provincial and ministerial levels is the highest-level class at the school. The first time the Central Committee of the CPC held a study session dates back to 1999, which focused on analyzing the causes and lessons of the financial crisis in Southeast Asian countries.
The theme of this year's study session is "boosting high-quality development of the financial sector", marking the first time since 1999 that the theme of finance has been addressed.
Today's piece presents the full-text translation of the readout of Xi's speech, with five quick takeaways added by me.
Xi makes important speech at study session on promoting high-quality development of financial sector
A study session on promoting high-quality financial development, attended by provincial and ministerial-level officials, was opened at the Party School of the Communist Party of China (CPC) Central Committee (the National Academy of Governance) on the morning of Jan 16. Xi Jinping, general secretary of the CPC Central Committee, Chinese president and chairman of the Central Military Commission (CMC), made an important speech at the opening ceremony. Xi noted that the path for financial development with Chinese characteristics not only follows the way for the development of modern finance, but also has distinctive features that suit China’s national conditions, and thus it is different in nature from the mode of Western financial development. We should have more confidence and continue to explore and improve our work in the financial sector, so that this path will become wider and wider.
1. In addition to differences in ideology with the West, the once-in-a-century international financial crisis in 2008 made decision-makers in China realize the importance of not blindly following the development mode of the financial sector in the West.
In 2017, 韩保江 Han Baojiang, an economic scholar at the Party School of the CPC Central Committee, said in an interview with "瞭望 Liaowang", a news magazine under Xinhua News Agency, that the international financial crisis is a concentrated manifestation of various ailments of the old international pattern and the Western development model. He said that the unprecedented global financial crisis has not only educated the Chinese people but also awakened people around the world.
Zhao Leji, Wang Huning, Ding Xuexiang, and Li Xi, members of the Standing Committee of the Political Bureau of the CPC Central Committee as well as Vice-President Han Zheng attended the ceremony. Cai Qi, a member of the Standing Committee of the Political Bureau of the CPC Central Committee, presided over the opening.
Xi noted that since the 18th CPC National Congress in 2012, we have actively explored the rules governing the development of finance in the new era, kept deepening our understanding of the defining feature of socialist finance with Chinese characteristics, and persistently promoted practical, theoretical and institutional innovation in the sector. In this process, we have accumulated valuable experience and gradually blazed a distinctively Chinese path to developing finance. On this path, the CPC Central Committee’s centralized, unified leadership over financial work must be upheld, people-centered approach must be adhered to as its value orientation, and the fundamental principle that finance serves the real economy must be upheld as well. On this path, risk prevention and control must be regarded as the abiding theme of financial work, market-oriented financial innovation and development under the rule of law must be constantly promoted, and supply-side structural reform in the financial sector must be continued. On this path, financial opening up and security must be well coordinated, and the general principle of pursuing progress while ensuring stability must be followed. These points have clarified how financial work should be perceived and carried out on the new journey in the new era. They form a sound whole that encapsulates the fundamental position, viewpoints and methods for developing finance in a distinctively Chinese way.
2. The eight "must" I highlighted above can be regarded as the core of the "distinctively Chinese path to developing finance", which is supposed to be different from the West mode. Those requirements are exactly the same as those stressed in the Central Financial Work Conference on October 31, 2023. Zichen Wang's Pekingnology has a pretty useful interpretation of the conference.
Xi emphasized that a country with a strong financial sector should have a strong economic foundation, and lead the world in economy, technology and comprehensive national strength. Such a nation should also have a series of key core financial elements, such as a strong currency, a strong central bank, strong financial institutions, strong international financial centers, strong financial supervision, and a high-calibre team of financial talents. Building a strong financial sector requires long-term and persistent effort. It is a must to accelerate the building of a modern financial system with Chinese characteristics, and establish and improve a sound and stable financial regulation system, properly-structured financial markets, a financial institution with clear division of labor and cooperation, a complete and effective financial regulatory system, a diversified and professional system of financial products and services, and a financial infrastructure that is independent, controllable, safe and efficient.
3. The six "strong" I highlighted above may be of interest to many readers. It appears that these goals are essentially the specific objectives emphasized by Xi when building "a country with a strong financial sector". In the context of "a strong currency", the internationalization of the renminbi (RMB) is likely to continue to be a hot topic. Regarding "a strong central bank", the Financial Times has a piece reporting that the central bank was sidelined after the plan on reform of Party and state institutions proposed the formation of a Central Financial Commission. While the establishment of the Central Financial Commission involved adjustments to the organizational structure, I am not sure that the term "sideline" can accurately describe the situation considering that the establishment of "a strong central bank" is one of the six key core financial elements stressed in Tuesday's study session.
Xi pointed out that efforts must be made to prevent and defuse financial risks, especially systemic risks. Financial regulation must be "sharp and tough." Financial regulatory and administrative authorities must clearly define their responsibilities and strengthen cooperation and coordination between them. It is imperative to strictly enforce the law in such areas as market access, prudential supervision and behavioral supervision, so that financial supervision both horizontally and vertically is administered to the letter. Local governments should not just do their financial work well, but also focus on the big picture, and manage well financial risks under their jurisdiction and perform their duties well in maintaining stability. In the process of risk management, corruption must be resolutely cracked down on, corrupt elements must be punished and moral hazard must be prevented. Financial regulation is a systematic project, and financial management departments, macro-control departments, industry authorities, judicial departments, and discipline inspection and supervision organs all have corresponding responsibilities. They should strengthen coordination in supervision, and optimize the risk management mechanism, under which anyone in charge must be held accountable for risk control. We should also crack down on financial crimes.
Xi stressed that it is necessary to improve our country's efficiency and capacity in the allocation of financial resources through expanding opening up, and boost our financial sector's international competitiveness and its influence on international rules. Prudence should be exercised when it comes to the pace and intensity of endeavors in this regard. It is imperative to promote high-level financial opening up with a focus on institutional opening up, and implement the management system of pre-establishment national treatment plus negative lists. It is essential to benchmark against relevant rules in the financial sector from high-standard international economic and trade agreements to streamline restrictive measures, improve the transparency, stability and predictability of opening-up policies, standardize outward investment and financing, and improve financial support for Belt and Road cooperation. It is also essential to boost the inter-connectivity between the domestic and overseas financial markets, further promote the facilitation of cross-border investment and financing, and take an active part in the global reform on financial regulation. The red line for financial security must never be crossed under the conditions of opening up.
4. Recently GRR published an article in which Zhang Wei, an economic scholar, said at the China Economic Roundtable that institutional opening-up is currently a top priority in the field of opening-up.
I also found a chapter in China's 14th Five-Year Plan (2021-2025) introducing "制度型开放 institutional opening-up" and the part related to financial sector says
We will steadily promote the opening of banking, securities, insurance, funds, futures, and other financial sectors, deepen the interconnection of domestic and foreign capital markets, and improve the system of qualified foreign investors. We will steadily promote the internationalization of RMB in a prudent manner, adhere to market-driven operation and independent choice of enterprises, and create a new type of mutually beneficial cooperative relationship based on the free use of RMB.
Note that the internationalization of RMB is classified as a category of institutionalized openness. It explicitly states that the Chinese government's attitude towards promoting the internationalization of the RMB is in a prudent manner. I feel that this generally aligns with the development trend since the publication of the plan. Of course, there may have been some impact (positive or negative) on the progress of RMB internationalization due to geopolitical conflicts in recent years. I am not an expert in this field, so I will not delve into it further.
And my understanding of the statement "We must safeguard the financial safety bottom line under open conditions" is that opening up is a prerequisite, and only after that should security be addressed.
Xi noted that to promote high-quality development of the financial sector and build China's financial strength, it is imperative to combine rule of law with rule of virtue and foster a financial culture with Chinese characteristics. It is essential to remain committed to honesty and trustworthiness instead of crossing the line, to seek interest without compromising moral principles instead of putting profit before everything, to be prudent and cautious in work instead of seeking instant success and quick profits, to uphold fundamental principles and break new ground instead of diverting funds out of the real economy, and to be compliant with law and regulations instead of conducting illegal activities.
5. The highlighted part are not new and it reminds me of China Media Group's recent anti-corruption documentary series, which particularly emphasized “新型腐败 new type of corruption” and “隐性腐败 quiet corruption” exemplified in the financial sector. In the fourth episode (available on YouTube), it disclosed the case of 范一飞 Fan Yifei, the former deputy governor of China's central bank, and investigation found that he mainly received bribes through an investment company run by his younger brother Fan Kan.
Xi noted at the end of his speech that officials at all levels must strengthen their financial acumen and capability in financial work. They should develop thinking about overall planning of both economic and financial work, faithfully implement the decisions and arrangements made at the central financial work conference, and coordinate efforts towards the high-quality development of both the economic and financial sectors, so as to make new and greater contributions to advancing the building of a strong country and national rejuvenation on all fronts through a Chinese path to modernization.
While presiding over the opening, Cai Qi highlighted that General Secretary Xi Jinping's speech is insightful, rich in substance, and has a broad vision and penetrating views. It is of political, theoretical, pertinent and guiding importance. This speech is of great significance for the entire Party, particularly senior officials, to have a correct understanding of the current situations and tasks facing China's financial development, further understand the fundamental principles and development path of financial work, substantially strengthen their capability in financial work and risk control, and stay committed to the path of financial development with Chinese characteristics. We should deepen our understanding of the speech's rich substance, core tenets and requirements for practical work, as well as the decisive significance of establishing Comrade Xi Jinping's core position on the Party Central Committee and in the Party as a whole and establishing the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. We should firmly uphold Comrade Xi Jinping's core position on the Party Central Committee and in the Party as a whole and uphold the Central Committee's authority and its centralized, unified leadership, and align our thoughts and actions with the decisions and plans made by the Central Committee.
Members of the Political Bureau of the CPC Central Committee, members of the Secretariat of the CPC Central Committee, vice chairpersons with CPC membership of the Standing Committee of the National People's Congress, state councilors, president of the Supreme People's Court, procurator-general of the Supreme People's Procuratorate, vice chairpersons with CPC membership of the National Committee of the Chinese People's Political Consultative Conference and members of the CMC attended the opening.
Leading officials from all provinces, autonomous regions and municipalities, and Xinjiang Production and Construction Corps, relevant central Party and state departments, relevant people's organizations, centrally-administered financial institutions, enterprises and institutions of higher learning, units of the People's Liberation Army and the People's Armed Police Force participated in the study session. Heads from central committees of other political parties, the All-China Federation of Industry and Commerce and other relevant departments sat in on the opening.