Exclusive Insight: Deciphering the Central Financial Committee and Its Administrative Apparatus
Driver who crashed into Chinese consulate carried knife, crossbow； ‘Sell TSMC, buy ASML’ gains traction as China-Taiwan risks grow ；China's Xi tells Vietnam not to forget roots of their friendship
Welcome to this issue of The China Brief. Today is October 20, 2023. Here at The China Brief, we bring you the latest news on China's politics, economy, and society from global media sources, along with exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
Deciphering the Central Financial Committee and Its Administrative Apparatus
Li Weijun, contributor to The China Brief
In early 2023, China embarked on a new phase of institutional reforms, and a significant development was the establishment of the Central Financial Committee. Recently, the intricate organizational structure and personnel dynamics of this committee have come under sharper focus, drawing the attention of the global media.
1. A Hub of Power or an Interdepartmental Coordinator?
The answer is unequivocally the former. At its core, the Central Financial Committee is the nerve center for leadership and decision-making in China's financial domain. It wields substantial influence.
From an organizational perspective, the committee holds precedence over the three primary financial regulatory entities in China: the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission. This hierarchy forms a hub-and-spoke structure, with these regulatory bodies obligated to provide regular reports to the committee. This indicates that before the committee's inception, these three regulatory agencies had significant authority within their respective domains. However, with the committee's establishment, their decision-making power was significantly reduced, and they became agents for executing policies.
Regarding personnel, the committee's director is expected to be a member of the Political Bureau of the Communist Party of China Central Committee, likely Vice Premier Ding Xuexiang. The deputy director is anticipated to be Vice Premier He Lifeng, who also serves as a member of the Political Bureau with a designated responsibility for financial matters. The heads of the three aforementioned financial regulatory bodies, such as Pan Gongsheng, Governor of the People's Bank of China, Li Yunze, Director of the China Banking and Insurance Regulatory Commission, and Yi Huiman, Chairman of the China Securities Regulatory Commission, will serve as committee members.
2. The Relationship Between the Central Financial Committee and the Central Financial Committee Office
For simplicity, one can think of the Central Financial Committee as a group of decision-makers. The day-to-day operations are overseen by the Central Financial Committee Office, which functions as the central nervous system guiding the future of financial operations in China.
3. Structure and Personnel of the Central Financial Committee Office
The director of the Central Financial Committee Office also holds the role of deputy director of the Central Financial Committee, responsible for financial matters, with Vice Premier He Lifeng at the helm. As the central hub for financial operations in China, this office includes several key bureaus, such as the Policy Research Bureau, Policy Coordination Bureau, Risk (Resolution) Coordination Bureau, Inspection and Supervision Bureau, Comprehensive Bureau, and Personnel Bureau.
Currently, this office has two deputy directors: Wang Jiang, overseeing daily operations and holding a ministerial-level position, and Xia Xiande, formerly Vice Minister of Finance, now in a deputy ministerial-level position. Both individuals share extensive grassroots experience, a rapid rise in recent years, and brief stints in various roles. This staffing approach mirrors the one utilized by Xi Jinping during military reforms a decade ago, which proved successful. However, the key difference is that military reforms a decade ago did not involve actual combat risks, whereas the current Chinese financial system operates in a turbulent environment with a constant risk of financial crises. Leaders in central agencies, with only grassroots experience and lacking experience in higher leadership roles and comprehensive risk management, present a clear personnel challenge. In terms of qualifications, leaders within the Central Financial Committee Office, exemplified by Wang Jiang and Xia Xiande, are appreciative of Xi Jinping for their rapid ascent and remain politically loyal. However, their relatively limited qualifications pose challenges in systematically addressing systemic financial risks, overseeing comprehensive financial system reforms, and formulating macro-financial policies to drive economic growth, all essential components of China's financial landscape.
Driver who crashed into Chinese consulate carried knife, crossbow
Reuters
Newly released video footage shows a Chinese citizen crashing his car into the Chinese consulate in San Francisco and then slashing at a policeman with a knife before being shot dead by the officer. In addition to the knife, police also found a loaded crossbow with arrows in the backseat of the suspect's vehicle. The police department's internal review of the incident is still ongoing, as is a separate investigation into the case. The motive for the attack is still unknown.
‘Sell TSMC, buy ASML’ gains traction as China-Taiwan risks grow
Japan Times
The increasing pressure from China on Taiwan has led some equity investors to sell their positions in Taiwan Semiconductor Manufacturing Co. (TSMC). Martin Currie and Shelton Capital Management have both divested their TSMC positions, while Plato Investment Management has expressed nervousness about the business. However, these investors are finding an alternative in ASML, a key supplier to TSMC.
China's Xi tells Vietnam not to forget roots of their friendship
Reuters
Chinese President Xi Jinping emphasized the importance of the "original intention" of China and Vietnam's traditional friendship during a meeting with Vietnamese President Vo Van Thuong. China and the United States have been competing for influence in Southeast Asia, and Vietnam recently elevated its ties with the US to a comprehensive strategic partnership. Despite a brief war in 1979, China and Vietnam have traditionally strong ties, and Xi stressed the need for joint consultation and cooperation between the two countries. There had been speculation about a possible visit by Xi to Hanoi, but no official announcement has been made.
China Evergrande says it will revise its restructuring plan
Nikkei Asia
China Evergrande Group has revised its proposed restructuring plan in order to "meet the company's objective situation and the demand of the creditors", according to a filing to the Hong Kong Exchange. The move led to the cancellation of planned hearings both in Hong Kong and in the Cayman Islands and British Virgin Islands. The decision to revise the plan could impact the firm's share sale involving Evergrande's electric vehicle unit, China Evergrande New Energy Vehicle Group.
China ready to boost Pakistan ties but urges security guarantee -Xi
Reuters
Chinese President Xi Jinping has urged Pakistan to ensure the safety of Chinese organisations and personnel working there. China is a major investor in Pakistan but both separatist and Islamist militants have targeted Chinese projects in recent years, resulting in the deaths of Chinese personnel. Xi called for an "upgraded version" of the China-Pakistan Economic Corridor, with enhanced cooperation in various sectors. He also expressed China's openness to cooperation within the UN and Shanghai Cooperation Organisation frameworks and welcomed more high-quality agricultural imports from Pakistan. Separatist insurgents in Pakistan's Balochistan province have accused China of ignoring warnings not to enter deals with the Pakistani government.
Belt and Road anniversary prompts reflection on China's global ambitions
Japan Times
Chinese President Xi Jinping welcomed participating states in the Belt and Road initiative to Beijing to celebrate its 10th anniversary. Since its inception, the cumulative amount of investment into BRI member countries and regions has surpassed $1 trillion. Russian President Vladimir Putin, who is wanted by the International Criminal Court for war crimes committed during Russia's invasion of Ukraine, visited Beijing this week to commemorate the anniversary. This visit underscores Beijing's continued economic and diplomatic support for Moscow despite the invasion and suggests that China will continue to maintain its pro-Russia posture. It also shows that the Chinese leadership plans to continue broader cooperation with Moscow to reshape the Indo-Pacific region via BRI.
Exclusive: US Army charges Private Travis King with desertion over dash into North Korea
Reuters
US Army soldier Private Travis King has been charged with a range of crimes, including desertion, assault against fellow soldiers, and solicitation of child pornography. The charges were filed by the Army after King's release from North Korean custody in September. King had run into North Korea in July, following weeks of negotiations to secure his release. His mother has said that she believes something happened to her son while he was deployed. King's case sets up a significant legal battle for the 23-year-old soldier.
China says US Pentagon report on nuclear warheads distorts facts
Reuters
China's foreign ministry has dismissed a US Pentagon report claiming that China will likely have over 1,000 nuclear warheads by 2030. The ministry called the report prejudiced, distorted, and spread the theory of China's threat. The Pentagon report also claimed that China's Navy has more than 370 ships and submarines. China's foreign ministry spokesperson stated that China adheres to a nuclear strategy of self-defense and has no intention of engaging in a nuclear arms race.
China curbs graphite exports in latest critical minerals squeeze
Reuters
China has announced that it will require export permits for certain graphite products in order to protect national security. Graphite is a key component of batteries for electric vehicles (EVs), and China is the world's top producer, accounting for two-thirds of global supply. The demand for graphite in the EV sector has surged in recent years, with the battery end-use market for graphite increasing by 250% globally since 2018. China also refines more than 90% of the world's graphite into material used in EV battery anodes. The move to curb exports of strategic minerals follows China's previous export restrictions on gallium and germanium products used in high-tech microchips.
China's 'Lehman Brothers' moment will be just as tense as 2008
Nikkei Asia
China may let a "systemically important" financial institution go under if it refuses to bail out the troubled firm, according to Benjamin Bennett, Asia-Pacific investment strategist for Legal & General Investment Management. Bennett notes that while China has the resources and governance to handle a financial crisis, similar to the US' experience with Lehman Brothers in 2008, it may choose not to, putting it at risk of a "scarring impact." He says that comparisons have been drawn between China's property market bubble and Japan's real estate bubble of the late 1980s.
China weighs options to blunt U.S. sanctions in a Taiwan conflict
Reuters
Chinese researchers studying the Western response to Russia after its invasion of Ukraine have suggested that, in the event of a war with the US over Taiwan, China should create a global network of companies under US sanctions, seize American assets within its borders, and issue gold-denominated bonds. These suggestions are based on the Chinese government-affiliated researchers' analysis of the sanctions against Russia and their potential implications for China. The researchers warn that China's much larger economy and dependence on advanced foreign technology and commodity imports mean that a sanctions fight with the West could be far more destructive than that between Russia and the West. Therefore, these researchers are urging China to prepare for such extreme scenarios and ensure its financial and economic stability. Some researchers have also suggested that China should increase its economic links with the US and its allies to blunt the impact of potential sanctions, rather than seeking alternative methods of financing and trade.
Australia says 'not necessary' to cancel Chinese firm's lease on Darwin port
Reuters
Australia has announced that it will not cancel or modify the 99-year lease held by Chinese company Landbridge on the northern port of Darwin. The decision was made following a security review and is intended to ensure that Australia remains an attractive destination for foreign investment while maintaining national security. The lease has been under scrutiny since 2021, when the Australian government began to increase screening of foreign investment. The announcement comes ahead of Prime Minister Anthony Albanese's visit to Washington and an expected visit to China later this year. Landbridge won the bidding process to operate the port in 2015 in a deal worth AUD 506 million ($390 million).
Tightened US rules throttle Alibaba and Baidu’s AI chip development
Financial Times
Chinese tech giants Alibaba and Baidu may be left relying on outdated and stockpiled chips to pursue their artificial intelligence (AI) ambitions, following tightened US export controls on chips. The new restrictions will force Chinese tech groups to turn to AI chipsets similar to Nvidia's V100, which was released in 2017, in order to train and run generative AI models. However, chips have become significantly more advanced since then, posing an "existential challenge" to China's efforts to keep up with AI development. The controls also increase the number of advanced AI chips requiring a licence that is likely to be denied.
Morgan Stanley Warns Against Buying the Dip in Chinese Stocks
Bloomberg
Morgan Stanley is advising investors against buying Chinese stocks, warning that foreign funds may continue to sell unless there is further policy easing and sentiment remains fragile. The outflow of foreign investment from China's A-share market has reached an "unprecedented stage," with a cumulative outflow of $22.1 billion from August 7 to October 19, the largest in Stock Connect's history. Global funds have been dumping Chinese shares due to rising geopolitical tensions, economic headwinds, and an ongoing housing crisis. Morgan Stanley suggests that a fundamental improvement in China's macro economy and government stimulus measures are needed to restore investor confidence.
Pentagon says China set to have over 1,000 nukes by 2030
Japan Times
China is rapidly modernizing and expanding its nuclear arsenal, according to a report from the Pentagon. The report states that China currently has more than 500 operational nuclear warheads, and it is on track to exceed previous expectations. The Pentagon estimates that China will have over 1,000 operational nuclear warheads by 2030. The report also highlights that China is investing in land-, sea-, and air-based nuclear delivery platforms, as well as the infrastructure required to support its nuclear program.
China Stocks Erase All Reopening Gains as Property Woes Persist
Bloomberg
Chinese stocks have erased all the gains made during their reopening rally last year, as concerns over the health of the property sector continue to drive foreign outflows from the market. The CSI 300 Index fell as much as 0.7% on Friday, dropping below its closing level on 31 October 2022. Persistent worries about an uneven economic recovery and a weaker-than-expected rebound in consumption have kept equities in a downtrend. Relentless selling by global funds, citing China's housing crisis and tensions with the West, has contributed to the benchmark's 16% slide from its peak on 30 January.
China's Xi offers to help Sri Lanka; buy more of its exports
Reuters
China's President Xi Jinping has offered assistance to Sri Lanka without any political conditions, and has also pledged to buy more of the country's exports. The offer comes just a week after Sri Lanka announced a debt agreement with the Export-Import Bank of China, which will cover $4.2bn of its $7bn debt to Chinese lenders. President Xi expressed China's willingness to expand imports of Sri Lankan products and encourage Chinese enterprise investment. The move is part of China's larger 'Belt and Road' initiative.
How China Could Play a Key Role in the Israel-Hamas War—and Why It’s Not
Yahoo US
Amid a mounting Palestinian death toll and an expanding humanitarian crisis on the Gaza Strip, the U.S.’s unflinching support for Israel has drawn criticism from Arab states, widening the diplomatic void in the Middle East that China hopes to fill. Washington over the weekend even urged Beijing to use its growing influence—particularly its relationship with Iran, which may play a key role in whether the conflict escalates—to prevent further attacks on Israel.
China's Mideast envoy urges guarantees for Palestinians
Reuters
China's special envoy for the Middle East, Zhai Jun, has called for greater coordination with Russia in an effort to resolve the Israel-Gaza conflict. Zhai cited the lack of guarantees for Palestinian rights as the fundamental reason for the current situation, and reaffirmed China's alignment with Russia on the issue. The crisis has placed China and Russia at odds with the US, which has pledged extra funding to help Israel fight Hamas. Zhai's comments came after a failed attempt by Brazil to pass a UN Security Council resolution calling for a humanitarian ceasefire.
The number one takeaway from Biden’s address
CNN
In his recent Oval Office address, President Joe Biden emphasized the importance of supporting Israel and Ukraine in their fights against external threats, highlighting that these battles are crucial to the security of the United States. However, the underlying message of Biden's speech was about America itself and the perceived threats to its foundational values in a politically volatile time. He called on the nation to reject terrorism and tyranny, honor its global role, and reject intolerance and bitterness in domestic politics. This address is likely to be seen as a signature moment in Biden's presidency, as it outlined his vision for America and its role in the world.
Biden's speech came amidst political chaos in Washington and against the backdrop of a potential re-election bid in which he could face former President Donald Trump. The choice between the internationalism and conventional statesmanship of Biden and the "America First" nationalism of the Trump movement will shape America's future. Biden sought to make sense of confusing and frightening events overseas, diagnosing the danger and suggesting a path forward consistent with American leadership and values.
However, Biden faces political challenges in Congress, as support for aid to Ukraine is waning and Republicans are increasingly opposed to arming Ukraine. The failure of the GOP to agree on a new House speaker is sending a message of dysfunction and weakness to America's rivals. Biden's decision to combine aid requests for Israel and Ukraine will trigger a political clash, as Republicans are willing to finance Israel's struggle against Hamas but don't see Ukraine as a critical US interest. Polls show that Americans do not necessarily agree with Biden's position on the threats to Ukraine and Israel.
Overall, Biden's address highlighted the importance of America's role in the world and the need to defend its foundational values. However, he faces political obstacles in Congress and the challenge of convincing Americans of the significance of supporting Israel and Ukraine. The coming months will determine whether Biden can rally the nation and fulfill his promises of restoring normality and global stability.
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