China President Xi Jinping unveiled plans to turn China into a “financial superpower” in the world at a high-level meeting with provincial leaders and country officials in Beijing on Tuesday.
The president also highlighted the importance of fundamentals — strengthening currency, central bank and domestic and international financial institutions.
“A financial superpower should be based on a strong economic foundation,” said Xi, as quoted by state outlet Xinhua. “It must have world-leading economic, technological and comprehensive national strength.”
Xi described the system as “distinct from Western models” due to the involvement of the Communist Party’s leadership and an emphasis on financing assistance for the real economy. He encouraged strong supervision and talent to realize the vision.
“Financial regulation must have teeth,” Xi said. “All localities must plan for the overall situation based on one region and practice risk management and stability maintenance.
According to Xi, China should focus on elevating its competitiveness and influence on international order. He said it would promote “high level” financial opening-up.
The plans include streamlining restrictive measures, enhancing transparency, stability and predictability of China’s economic policies, regulating investment and financing activities abroad and increasing financial assistance for the Belt and Road Initiative.
Xi acknowledged that achieving the goals would require long-term work. He highlighted the need to prevent systemic financial risks, encouraging lawmakers and industry authorities to take on responsibilities and strengthen cooperation.
Boosting renminbi’s power
China has made several efforts to boost the power of the renminbi, establishing an alternative to the U.S. dollar in the global financial system. According to China, its effort to boost the renminbi is not about offense — dethroning the U.S. dollar as the main global reserve currency — and instead about defense.
The country aims to strengthen its financial system and lower its geo-economic vulnerabilities due to the greenback dominance in global finance. Besides China, other countries have also tried to reduce their reliance on the dollar.
The de-dollarization trend came in the wake of Russia’s invasion of Ukraine in February 2022. The West froze Russian assets abroad and is reportedly considering using these assets to fund Ukraine during the war.
In the case of China, it has partnered with several other countries to conduct trade using the renminbi. Saudi Arabia, for example, accepts renminbi payments for its oil sales to China. The largest oil producer even plans to ramp up its oil supply to China this year.
China also established commodities exchanges across its industrial cities, aiming to increase the renminbi’s influence in global commodities pricing. In 2020, China launched the Ganzhou Rare Metal Exchange, which uses the renminbi to quote prices of its commodities — tungsten, minerals and rare earth products.
China’s financial challenges
Analysts say that Beijing is concerned over the fragility of the country’s financial system. They point out several main challenges the government currently faces — a turbulent geopolitical environment, a slump in the property market and a debt crisis in regional governments.
China responded to the issues by reshuffling the regulatory regime and setting up a Central Financial Commission to supervise the multi-trillion dollar industry. In China, most banks, securities houses and insurers are overseen by governments at different levels of jurisdiction.
The local government debt crisis has also caused concerns regarding the prospects of regional economies. Analysts have also pointed out that the issue could spill over into the broader banking sector, which has significant issues to the economic condition at the grassroots level.
Last week, Fitch Ratings noted that many Chinese banks were experiencing heightened capital pressures. It suggested that Beijing continued its targeted credit allocation approach, focusing on channeling credit to “strategic sectors” to maintain national stability.