China Macro: Central Financial Work Conference

Zerlina Zeng – Senior Analyst of East Asia Corporates
Karen Wu – Analyst of Asia Pacific Banks
Zoey Zhou Qianyun – Analyst of East Asia Corporates

EXECUTIVE SUMMARY
    • China held its Central Financial Work Conference (CFWC) on 30 and 31 October; the twice-a-decade closed door meeting is the highest-level policy conference of the financial industry.
    • The CFWC mainly summarized the medium-term policy priorities related to the financial industry that had been communicated in previous policy meetings; we are watching upcoming key policy meetings, including the Politburo meeting and the annual Central Economic Work Conference in December (which sets the national agenda for the economy and the financial and banking sectors) on the implementation of these policy priorities and the policy stance for 2024.
    • The CFWC emphasized the role of the party in financial policy setting and implementation; this alongside the establishment of a new national financial regulator – the National Administration of Financial Regulation – in the Two Sessions Meeting in March signaled a more centralized financial regulation decision-making of in China. In addition, the CFWC this year was directly chaired by President Xi instead being managed by the Financial Stability Committee of the State Council.
    • The CFWC suggested establishing a long-term mechanism to resolve risks related to local government debt, which was consistent with the recent measures taken by the central government to ease the debt burden of the local governments and to manage the refinancing risk of local government financing vehicles; we think that these measures have reduced the tail risk of LGFVs from weak provinces albeit with limitations.
    • The CFWC urged financial institutions to treat state-owned and privately-owned developers equally and to meet the reasonable financing need of the property sector; these policy statements had been announced and repeatedly communicated since 2H22, but are unlikely to reverse the multi-year downturn of the property sector or stop property bond defaults, in our view.
    • The CFWC called for financial institutions to support the funding of technology innovation, the green transition, SMEs, the digital economy, elderly care, and food & energy security; large state-owned financial institutions are expected to take a major role while it also highlighted the need to control the risk of small and medium-sized financial institutions which are guided to focus on local operations.
    • The CFWC reiterated the importance to maintain prudent and proactive monetary policies, to keep the RMB exchange rate broadly stable at reasonable levels, and to support the development of China’s capital market.

On 31 October, China concluded its two-day Central Financial Work Conference (CFWC). The twice-a-decade closed door meeting is the highest-level policy conference of the financial industry. However, the CFWC this year didn’t convey many new policy signals as the reshuffling of the State Council and financial regulators had been concluded in the Two Sessions meetings in March.

The CFWC mainly summarized the medium-term policy priorities related to the financial industry that had been communicated in previous policy meetings, such as the mid-year politburo meeting in June. These included: (1) emphasizing the leadership of the China Communist Party (CCP) in financial policy making; (2) preventing and resolving local government debt and property sector risks; (3) guiding the financial industrial to service the real economy while controlling the risk of small and medium-sized financial institutions; and (4) Maintaining prudent and proactive monetary policies, a stable RMB and the healthy development of the capital market.

Key Points Of The Central Financial Work Conference (CFWC)

I. Emphasizing the leadership of the China Communist Party (CCP) in financial policy making.

Unlike the last conference held in 2017, which was known as the National Financial Work Conference (NFWC, 全国金融会议) and was led by the Financial Stability Committee of the State Council, the CFWC (中央金融工作会议) this year was directly chaired by President Xi, and emphasized the role of the party in financial policy setting and implementation.

In our view, the rhetoric alongside the establishment of the national financial regulator in the Two Sessions Meeting in March (the National Administration of Financial Regulation) signaled a more centralized decision-making of financial regulation in China. This could to some extent improve the coordination among different financial regulators and enable faster implementation of financial policies and reforms; however, headline risk on Chinese financial institution $ bonds may increase as the top authorities vowed to roll out a comprehensive supervision of the financial industry and to continue to crackdown on corruption.

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