By Alexander Jones, International Banker
With last year proving unusually scandalous for China’s banking industry, it is becoming increasingly clear that Beijing’s appetite for rooting out financial-sector corruption in 2023 remains undiminished. And with probes having recently been launched into some of the country’s most senior banking executives, it seems that this anti-corruption drive’s scope will expand further and more deeply into China’s lending practices over the coming months.
The initiatives have already brought well over 1.5 million officials under investigation from all areas of industry and government after President Xi Jinping promised to target both “tigers” and “flies”—or both the elite and lower-level officials—to wipe out corruption in China. For instance, a former vice minister of public security, Sun Lijun, was found guilty of several major crimes, including accepting bribes worth 646 million yuan ($90 million), manipulating the stock market and possessing weapons illegally. He was expelled from the ruling Communist Party of China (CPC) in 2021 and then received a suspended death sentence in September 2022, which will be commuted to life in prison without parole after two years.
As for the $60-trillion financial sector, despite being among China’s most profitable industries—last year saw its six biggest state-owned players achieve combined profits of some 1.36 trillion yuan, representing an annual growth of around 6 percent—it remains susceptible to corruption levels deemed intolerable by the Chinese government. In particular, sizeable exposures to risky property sectors and local financing vehicles have long-presented banking institutions with a multitude of opportunities for financial malpractice and have been among the key focus areas for Beijing’s anti-corruption forces in recent months.
And as China’s regulators obtain a firmer grip on financial corruption, such opportunities are being rapidly closed, particularly since late 2021, when President Xi Jinping launched sweeping reforms and anti-corruption drives against the sector. Largely through China’s top internal control institution, the Central Commission for Discipline Inspection (CCDI), the government has brought to heel some of the most systemically important financial institutions in the country—the central bank included, as well as the banking and insurance regulator, stock exchanges, and investment-management and other financial-services firms.
Indeed, the CCDI confirmed in November 2022 that the then-deputy governor of the People’s Bank of China (PBOC), Fan Yifei, was being investigated for “suspected serious violations of discipline and law”. He is one of six officials to hold the post of deputy governor of the central bank and remained in this position for seven years. The CCDI had already confirmed earlier that year, in May, that Sun Guofeng had been removed from his post as head of the PBOC’s Monetary Policy Department and was under investigation for the same charges, as was Zhan Hao, the former director of the General Technology Department of the PBOC’s Financial Information Centre, who was placed under investigation in April.
On the commercial-banking front, President Xi Jinping’s anti-corruption commitments have already ensnared several high-ranking banking figures from such industry heavyweights as the country’s seventh-largest commercial lender, China Merchants Bank (CMB), as well as Everbright Securities Company and Guotai Junan Securities Company. Having been removed from his position as president of China Merchants Bank in April 2022 after almost nine years at the helm, for example, Tian Huiyu was charged in early March 2023 with several violations, including taking bribes, insider trading and abuse of power, after almost one year of investigations into his dealings. According to local reports, his demise became one of China’s most publicly followed corruption cases in recent years. Tian Huiyu had been expelled from the CPC before the charges were levied against him.
This year, the tentacles of China’s anti-corruption efforts have extended further into the financial sector. And given the banking-sector turbulence that has arisen in the United States and Europe in recent months, prompted by the highly publicised failures of key lenders, including Silicon Valley Bank (SVB) and Credit Suisse, it would seem that now is as good a time as ever for China’s leadership to crack down on its own banking sector’s shortcomings, whether they be tied to corruption or risk management. “The party centre…worries that corruption in this sector, which takes many different forms and involves cadres of different levels, as well as financial agencies of different types, may jeopardise the financial safety of the country,” Jiangnan Zhu, associate professor in the Department of Politics and Public Administration at the University of Hong Kong, recently told the Financial Times, adding that the leadership considers the risks of financial-sector corruption as a “serious problem” that is damaging stability.
Indeed, more than a dozen finance executives have been either investigated or punished since February as the CCDI has ramped up efforts to, in its words, “seriously punish…corrupt elements” in “resource-rich, capital-intensive areas”, including finance, state-owned enterprises and grain-purchasing entities. “We must resolutely investigate and deal with corruption where political and economic issues are intertwined, resolutely prevent leading cadres from becoming spokesmen and agents for interest groups and powerful groups, and resolutely prevent political-business collusion,” the CCDI stated on its website in late February.
The anti-corruption efforts have even led to a major structural shake-up within the financial sector, with the government announcing the creation of the Central Financial Commission (CFC) in March, which is expected to be led by President XI Jinping. The CFC will operate directly under the top decision-making body, the Central Committee of the Chinese Communist Party (CCP), and will replace the Financial Stability and Development Committee, set up in 2017 to address risks across China’s financial system. “The restructuring strengthens the coordination of different financial regulators, and it can effectively avoid the separate regulations of different agencies, and prevent either inadequate or excess supervision,” CITIC Securities’ chief economist, Ming Ming, explained to the South China Morning Post (SCMP) in March. “It will be able to better prevent systemic financial risks and guide the financing support for the real economy.”
Also speaking to the SCMP, Pan Xiangdong, chief economist with the Beijing-based QiLai Research Institute, said the institutional changes usher in a new era for Chinese financial regulations, attributing the need for such an overhaul to policymakers placing high priorities on financial security and the challenges ahead. “The resonance of domestic and overseas risk is accelerating. The impact of international financial turbulence has become more obvious,” Pan Xiangdong said, citing the U.S. Federal Reserve’s rate hikes, the war in Ukraine and escalating tensions between the United States and China. “Financial risk remains an issue in some sectors, such as property. All demand further capability improvements to prevent systemic risk and advance financial reform.”
Just a couple of weeks later, the CCDI launched a fresh anti-corruption probe into key Chinese financial institutions, including the $1.35-trillion sovereign wealth fund China Investment Corporation as well as the China Development Bank (CDB), Agricultural Development Bank of China (ADBC), China Everbright Group and People’s Insurance Company (Group) of China (PICC). According to the head of the commission, Li Xi, this new investigation seeks to address the outstanding issues in the financial industry, with a focus on state-owned agencies being particularly important. Indeed, 30 state-owned industrial giants, mainly across the finance, defence and energy sectors, are also under investigation, along with the Shanghai Gold Exchange (SGE). And as the Financial Times reported on April 10, venture capitalists in Beijing had been hit with additional tax audits.
The CCDI and the State Supervision Commission (SSC) (National Supervisory Commission of the People’s Republic of China) also recently confirmed that Liu Lian’ge is under investigation again for “serious violations of discipline and law”. Liu Lian’ge, a former Bank of China chairman, is arguably among the most elite banking figures to be drawn into Beijing’s anti-corruption crackdown, along with the former chairman of $110-billion insurance giant China Life Insurance Company, Wang Bin, who was indicted in January for the same charges related to alleged bribery and the concealment of offshore deposits and who is “currently undergoing disciplinary review and investigation”.
Moreover, late March saw Li Li, the former president of the Beijing branch of the state-owned policy bank Export-Import Bank of China (Exim Bank) and former CPC chief, plead guilty to charges of bribery after approving financial leasing loans to companies in exchange for $14.5 million in bribes between 2010 and 2020.
Such high-profile scalps for Beijing’s anti-corruption forces further underscore that no official—even those occupying the most prestigious positions within China’s banking sector—will be spared.