The “Chinese Recipe” for Facing Banking Crises | Federico Rampini

China also has a banking problem, however Xi Jinping The solution is ready: more power for the Communist Party. Pure coincidence, as three American banks went bankrupt and a Swiss giant shook, Beijing’s local parliament (which is called the National People’s Congress) He approved a new framework for banking supervision. Thus arose the State Office of Financial Supervision and Administration, which absorbs powers and responsibilities that were previously divided between the various authorities responsible for the Central Bank, the Stock Exchange Supervisory Authority, and the supervisory committees of banks and insurance companies. The unique super regulator It will have to supervise the credit sector, which manages the equivalent of about 55,000 billion euros.

China’s real estate bubble and credit problems

There is no shortage of problems to watch out for. In the past, Chinese banks were part of the real estate investment boom, which ended in disaster: Construction giants bankruptcy, mountains of outstanding debt, as well as the local financial crisis (Because the local authorities were largely financing themselves by selling building permits and building land). Since Xi decided to tackle the real estate bubble and put an end to overinvestment in infrastructure, the banking system has been under pressure. It must stop fueling speculation, but at the same time it must not stifle the recovery of the second world economy, (e) The construction sector traditionally accounts for a quarter of China’s GDP.

Xi Jinping It needs credit institutions to be docile tools for its economic strategy which has plenty “Mirror” goals of Joe Biden’s goalsXi also wants to make China more independent in North America Advanced technologieswants to speed up the transition to a filesustainable economy. Another objective is to stimulate domestic demand to make the People’s Republic less dependent on exports. At the same time, modern luxury should be built, suitable for a rapidly aging society. Finally, there is still a very high youth unemployment rate, which is a thorn in the side of China’s economic performance. Xi also wants to curb international investment by major Chinese companies, including banks, which have had mixed results. All this in a scenario of increasing tensions with the West, which represents a headwind. there partnership with Russia – which will be enhanced with Xi’s visit to Moscow next week – It is not enough to compensate for the deterioration of relations with the West.

Bankers in handcuffs, the Chinese way

The banking system plays an essential role in any economy, and China is no exception. However, the tools for its regulation differ. Xi subjects his bankers to treatment somehow similar to that inflicted on big tech moguls like Jack Ma. Arrests and trials follow one another even in the world of finance. The former head of China Merchants Bank, Tian Huiyu, was expelled from the Communist Party in October, and then charged Abuse of power and insider trading. Another financier who has gotten into trouble in the banking and Big Tech worlds is Bao Fan whose group includes him China Renaissance Holdings It had close ties to the Chinese digital economy. Therefore, even China’s Silicon Valley is facing its banker in trouble. In his case, however, the treatment is different: after a period in which he disappeared, Bao Fan announced that he was in the hands of the police, with whom he “cooperates in the ongoing investigations”.

MSF and the Chinese version of our ESG

The new heads of banking supervision in China echo Xi Jinping Doctrine of “Shared Prosperity”: A slogan that describes the objectives of reducing inequality consistent with I deviated to the left happened under this commander. Chinese bankers are urged to move away from Western models, and not to pursue profits at any cost. But in a sense, Xi’s credo neatly converges with recent developments in Western finance: the ESG investment trend is committed to distancing itself from the pursuit of profit, in favor of other goals such as environmental and social sustainability. Where the Chinese model diverges is, of course, in The dominant role that was assigned to the Communist Party to direct the bankers on the right track. In fact, the new structure of supervisory powers over the banking system is expressly intended to consolidate party control.

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