31 Oct 2017
The conclusion of China’s 19th Party Congress on 24 October was a mixed blessing for Beijing residents.
On the one hand, it marked an end to the interruptions to daily life that characterised the last few weeks—bars and restaurants re-opened, traffic returned to a more manageable level of unpredictability, and internet and data mobile services stabilised.
On the other, the factories that had halted production to clear the skies for the gathered elites started up again on double time, and Beijing’s air is currently coarse and translucent with pollution.
These inconveniences visited on 22 million Beijingers are worth noting for two reasons.
First, they underline the momentousness of the event, at which China’s political direction for the next half decade is cemented and broadcast. Second, they capture the extent the party goes to to ensure events unfold smoothly—and, in a sense, to disguise that same momentousness.
The Congress, which saw over two thousand delegates from across the country convene in the Great Hall of the People on Tiananmen Square, is a huge spectacle, but one orchestrated to reveal as little as possible about real changes in strategy.
This makes predictions difficult, but there are a handful of fairly clear broad goals that will drive the governance of China over the next five years:
Below is a brief elaboration on each of these in terms of its relevance to financial crime prevention:
Xi Jinping Thought on Socialism With Chinese Characteristics for a New Era
This is the clumsy slogan (just now rebranded “new era, new journey, new chapter”— “新时代 新征程 新篇章”) that was written into the party constitution during the Congress, elevating Xi Jinping to the same status in party mythology as Mao and Deng Xiaoping.
In his marathon three and a half hour speech to the gathered delegates, Xi justified this “extraordinary elevation” (D. Trump) in broad ideological terms: if Mao secured China’s independence and Deng made the country rich, the goal of the Xi era of Communist Party rule would be to make China strong.
The first five years of Xi’s premiership were characterised by an unprecedented consolidation of personal power. This was achieved in particular by replacing top military leadership: 90% of military delegates at the Congress were attending for the first time.
It was equally noticeable that no heir-apparent to Xi was elevated to the seven-member Politburo Standing Committee. This added fuel to widespread speculation that he plans to remain in power beyond the two-term official limit.
In parallel, the party has been tightening its grip on the private lives of its citizens, in the streets, online, and in business.
Facial recognition technology records misdemeanours as minor as jaywalking, while AI bots and a vast army of government employees monitor online activity—data that may eventually be combined into a “social credit” system that ties access to state services and other advantages to a score of good citizenship.
For the last two decades private business has officially been encouraged in China. But—in line with the shift in priority from “rich” to “strong”—the government has recently been reminding businesspeople to stay loyal to the party.
Xi has pushed for the restrengthening of state owned enterprises (“SOEs”); strict limits have been set on outward investment, and the government is seeking stakes and board seats in high profile tech and media companies.
In addition, while private business is officially endorsed, this is not necessarily reflected at a local level.
In part by enforcing strict capital controls China has, over the last year, managed to stem the flood of money leaving the country. But the intensification of government attention on private business—combined with the disappearance of some high profile tycoons—is likely to make successful businesspeople all the more determined to park assets abroad.
Anyone wealthy enough to be seriously worried will have plenty of means at their disposal to get money out, but common methods of evading China’s capital controls include the use of shadow banking services, the informal system of value transfer fei qian (飛錢 – “flying money”), laundering through SOEs, and, some claim, trading bitcoin and other cryptocurrencies.
The new makeup of the most senior ranks of the party was announced at the Congress, but there will be many more appointments in the months to come.
Among them will be the heads of key financial agencies, including a new governor of the People’s Bank of China (Zhou Xiaochuan, who currently holds the role, is 69 and is expected to announce his retirement imminently).
One of those tipped to replace him is Guo Xuanfeng, nicknamed Whirlwind Guo for his brief but dramatic tenure at the helm of China’s stock markets. In 17 months in the role he introduced numerous measures to further open the markets to foreign money and to reduce endemic insider trading and market manipulation.
Whoever gets the job, stability will be the name of the game.
China’s economy faces a host of issues including slowing growth and rising debt, particularly at the household and local authority level.
Although increasingly open to foreign investment in recent years, China is viewed by some financial firms as the riskiest market in the world, for these reasons and in terms of compliance.
The party seems determined to shore up the country’s economic progress, to increase the confidence of local and foreign investors alike, and to avoid at all costs financial shocks that might damage the party’s legitimacy.
Playing unexpectedly by the rules: Wang Qishan steps down
One of the more surprising revelations of the last few days was the retirement of Wang Qishan from the Politburo Standing Committee.
Occasionally referred to as “the handle on President Xi’s knife”, Wang spearheaded an anti-corruption drive that has so far seen upwards of 1.3 million officials punished for graft (about 1.5% of all party members), including more than 150 in the upper echelons of the party. Wang is 69, a year above the generally accepted retirement age, but his success and closeness to Xi led many to predict that he would stay on, perhaps even in place of Li Keqiang as Premier.
Wang has been replaced as secretary of the Central Committee for Discipline Inspection (“CCDI”) by Zhao Leji (brief profile here), who formerly headed up the party’s Organisation Department.
It is unclear what, if any, changes Zhao will make as CCDI head, but the anti-corruption campaign is set to continue apace. One indicator was the exclusion of any SOE executives from the Central Committee—a change from 2012, when five of the body’s 200 full members were senior SOE directors.
This has implications not only for the risk associated with Chinese PEPs, but for China’s financial sector more broadly.
As the FT notes: the CCDI has lately been focused on the sector, and its withering gaze has had “a profound impact on macroeconomic policy, helping the party contain financial risk while redirecting capital flows away from speculative activities and back into the real economy.”
This convergence of corruption prevention, economic stimulus and risk reduction is neat in its conflation of the three things the Communist Party considers the greatest threats to its legitimacy.
Over the next five years it seems likely that Xi will continue to consolidate power through the anti-corruption campaign, and that regardless the official line about private enterprise, the government will continue to play a dominant role in the country’s markets.
But what the party cares about hasn’t really changed. So long as it can claim to be operating in a stable and honest manner, and to be achieving economic results, it can govern with conviction.
– By Amos Wittenberg
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