Businesshala News Exclusive | Xi Jinping Scrutinizes Chinese Financial Institutions’ Ties With Private Firms

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People familiar with the plan say the oversight is intended to ensure complete control of the Communist Party, seen as the lifeblood of the economy.

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Mr. Xi, who began his campaign late last year with a regulatory attack on private technology giants, is launching a broader round of oversight of financial institutions. The inspections, announced in September with few details, focus on whether state-owned banks, investment funds and financial regulators have become too fickle with private firms, according to people with knowledge of the plan. , especially some that have recently landed in Beijing’s crosshairs, such as property giant China Evergrande Group.handjob

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Ride Company Didi Global Inc.

and financial-technology firm Ant Group.

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The test, which is led by China’s top anti-corruption agency and focuses on 25 financial institutions at the heart of the Chinese economy, is the widest in an area that has come under suspicion from Mr. Xi since he came to power nearly a decade ago. . It is part of his broader effort to move China’s economic system away from Western-style capitalism towards a leadership change at the end of next year, when there is a need to bypass Mr. Xi’s convention and continue his rule beyond the usual two-five. Hopefully- the terms of the year.

Since this month, corruption-busters of the Central Commission for Discipline Inspection have been spreading through the offices of 25 state institutions, reviewing the files of their loan, investment and regulatory records and seeking answers that pertain to private firms. How some deals or decisions were made according to people familiar with the plan.

These men said that individuals who are suspected of engaging in unfair practices are likely to be formally investigated by the Communist Party and potentially charged later, while any institution that has gone astray , he will be disciplined.

The leadership will also use the findings of the inspections to decide whether to reduce the compensation of officers in the financial juggernaut of these states. Some officials in the finance ministry, which fund large state financial institutions, are pushing for cuts because compensation in the financial sector is considered much higher than in other industries.

At a September 26 meeting aimed at mobilizing troops before the new inspections, the current head of Mr. Xi’s anti-corruption body, Zhao Leizhi, said the inspectors in charge of investigating the 25 institutions “will thoroughly search for any political deviations,” According to the official Xinhua news agency.

Neither the Central Commission for Discipline Inspection nor the State Council, the Information Office of China’s cabinet, responded to questions. The press offices of the 25 institutions that are being investigated and the other companies mentioned in the article also did not respond to inquiries.

The financial-sector scrutiny comes as Beijing tries to remove the economy’s reliance on debt-fueled manufacturing, which is causing turmoil in China’s property sector. By expanding his economic campaign, Mr. Xi runs the risk of a dynamic that could severely curtail growth in the months ahead.

Analysts said that amid the uncertainty, many banks are already withdrawing from lending to private developers and other businesses.

“When uncertainty mounts, the only way to react is to stop doing what you’re doing,” said Michael Pettis, a finance professor at Peking University. But a slowdown in economic activity in the private sector – from tech giants uncertain about the regulatory environment to private developers whose lending spigot has been cut – presents a dilemma for Beijing. “Without ‘bad’ lending, you won’t be able to achieve growth goals,” Mr Pettis said.

This could force the government to step in with its age-old incentive playbook of state lending for infrastructure investment – deepening the imbalance that leaders have pledged to shift that tilt away from the private sector.

Mr. Xi’s goal, some officials said, is to ensure that the party maintains complete control over the country’s economic life, preventing the financial sector from being taken over by big private businesses and other power players who threaten state influence. .

The details of anti-corruption investigations are often ambiguous. During his early years in power, Mr. Xi used a broad campaign to sweep down or sideline political rivals in order to clean up a party riddled with corruption and secure his hold on power.

The financial sector is known within China as the power base of Vice President Wang Qishan, who rose to prominence when running the state-owned China Construction Bank. Corporation

He had installed people close to him in key positions in state-backed financiers, including China Construction Bank, in the 1990s and over the years.

Serving as Mr. Xi’s antigraft czar during the leader’s first term, Mr. Wang largely avoided scrutiny of the financial sector while he scrutinized other parts of the economy. But financial risks remained in China due to aggressive lending by state banks to some well-connected corporate highflyers.

Mr. Wang’s political influence has waned in recent months. One of his longtime associates was accused in August of accepting more than $71 million in bribes. According to people with knowledge of the scheme, Mr. Wang had links with some financial firms that are now facing investigation.

For example, China Construction Bank helped finance HNA Group’s acquisitions overseas. HNA, whose president is Chen Feng, a former associate of Mr. Wang, declared bankruptcy last year under heavy debt. Mr Chen has recently been detained for suspected criminal offences, HNA revealed in late September.

People said China Construction Bank’s loan to HNA is expected to be part of the new round of oversight.

State banks’ loans, especially to faltering developer Evergrande, will also be scrutinized, according to people familiar with the plan. Once the industry darling, Evergrande is now facing China’s biggest default as it struggles with more than $300 billion in liabilities.

One of Evergrande’s main lenders is the financial conglomerate Citic Group, which is now being investigated. Over the years, lenders to Cititic, founded in the late 1970s by China’s most famous “red capitalist” Rong Yiren, have created the closest thing to China to Wall Street culture, to experiment with capitalism.

They carry risks that some traditional lenders have shied away, even going so far as to create investment funds for firms like Evergrande. For example, when the developer needed funding for projects in 2015, he received a pledge of about $3 billion from Citi, according to people with knowledge of the matter. Citic then turned the fund into investment products sold to individual investors, promising a high rate of return funded by debt payments from Evergrande. A possible default by the developer would put investors’ money at risk.

Over the past few years, Citic has provided more than $10 billion to Evergrande, despite Beijing’s repeated warnings against lending real estate, according to people close to the bank.

Xie Hongru, who ran Citibank’s office in the southern city of Guangzhou, near Shenzhen’s home base of Evergrande, has been under investigation by party disciplinary officials since last month, according to the anti-corruption agency. Mr Zee managed the bank branch from 2015 to 2018, a period when Citi extended its funding to the developer. The new round of financial oversight will subject the bank to a wider scrutiny of its lending practices.

Late last month, Citibank’s chief financial officer and the party’s highest official, Fang Haiying, told investors that the bank had taken measures to reduce its overall exposure to Evergrande and to prepare for potential losses from developer financing. More money has been set aside for

Other large state lenders to Evergrande, including bank-owned China Everbright Group and Agricultural Bank of China Ltd.

, one of the country’s four big banks, is also being investigated as part of the financial oversight, people with knowledge of the matter said.

The inspectors will also investigate how a troupe of state funds, including those run by sovereign-wealth fund China Investment Corp, or CIC, and large banks and insurance companies, are now held private at the center of Mr. Xi’s technical crackdown. Firms had to be invested, according to the people.

“Do those investments represent the interests of the state or the interests of certain individuals?” said one of the people. “This is an important question.”

CIC, whose mandate is to scrape deals outside China, has invested in Ant Group, the troubled financial-technology firm founded by Jack Ma, and Didi Global, the ride-hailing company, which is selling its stock in New York City. After the sale is going through cyber security checks. York at the end of June.

According to people close to the CIC, the fund, which has about $1 trillion in assets, has set up an office to cooperate with inspectors, who are expected to march to the headquarters in Beijing this week. “People are nervous,” said one of the people.

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