In China, Xi Jinping’s ‘financial superpower’ ambitions spur local scramble for resources
- Some of China’s biggest provincial economies intend to expand and diversify financial resources this year, largely to fund economy-boosting construction projects
- But analysts say the rush to secure more financing at local levels could run counter Beijing’s de-risking campaign amid a property crisis and local-government debt woes
China’s economic powerhouses are vying for more financial resources to fuel their development, hoping to ride the tailwinds of President Xi Jinping’s intention to turn the country into a financial superpower.
Five of China’s top-10 provincial economies, including Guangdong, Jiangsu and Zhejiang, have touched on their visions for flexing their financial muscles.
The plans include introducing more financial institutions to fund local construction efforts while adding value to the broader financial ecosystem, such as through more diverse services and support, according to their official government documents.
For instance, authorities in east China’s Jiangsu vowed to facilitate the flow of capital into the real economy, which they say would help “resolve local debt risks and equally meet the reasonable financing needs of both state-owned and private real estate firms”.
The central province of Henan, known for its local iPhone assembly plants and as the country’s bread basket, is also looking to attract foreign financial institutions to provide additional financing for the local manufacturing industry.
The southwest province of Sichuan also pledged to build itself into a financial epicentre for the region, with the sector’s added value accounting for a larger share of the provincial gross domestic product (GDP) – 7.3 per cent – by 2025, up from 6.9 per cent in 2020.
These five provinces, representing more than a third of China’s total economic output, have been tasked with shouldering a larger share of the nation’s economic recovery.
Financial resources remain vital in China’s investment-driven growth, even amid Beijing’s efforts in recent years to shift the economic driver to consumption and tech innovation.
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Local authorities are particularly keen on securing construction funds, either from banks or central government coffers, as their tax revenue and land income have fallen.
The economy of Guangdong, the southern manufacturing and tech hub that accounts for about one-tenth of the nation’s GDP, grew 4.8 per cent last year, weighing on the national average of 5.2 per cent.
And the province’s aggregated financing, China’s measurement of funding for the real economy, totalled 3.14 trillion yuan (US$326.7 billion) last year, or 8.8 per cent of the national total.
The province was overtaken by east China’s Zhejiang in terms of social financing and GDP growth.
If they fixate solely on the number of financial institutions … they could develop large yet ineffective financial systems
Zhejiang’s aggregate capital totalled 3.73 trillion yuan, including bank loans, stock market financing, bond proceeds and government bonds, and its GDP grew 6 per cent last year.
Meanwhile, the rush to secure financial resources has raised concerns among analysts that such local initiatives could jeopardise Beijing’s financial de-risking campaign, as property and local-government debt crises continue to pose outsized threats to the financial system.
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“Amid the aspirations of local governments to transform into ‘financial powerhouses’, they should prioritise financial risk control over the sole pursuit of transaction volumes and deposits,” said Peng Peng, executive chairman of the Guangdong Society of Reform.
“If they fixate solely on the number of financial institutions, without considering the mentioned conditions, they could develop large yet ineffective financial systems,” Peng added.
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At a high-level meeting last month, President Xi elaborated on his goal of making China a “financial superpower” – with a financing model that is “distinct from Western models”, as it focuses on financing support for the real economy.
Peng said that the five aforementioned provinces already have large manufacturing industries, and that they need funding to facilitate their industrial transformations and upgrades.
However, “as the five have different industrial strengths, they should avoid the copycat model when they are implementing their financing goals”, he added.
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Beijing is widely expected to loosen its monetary stance to ensure a solid footing for China’s economic recovery this year, after the nation’s banks, largely controlled by the central government, extended a record high of 22.75 trillion yuan in new loans last year.
Domestic investment banks and securities houses largely expect that bank lending was between 4.5 trillion and 4.7 trillion yuan last month, which would be the second-highest monthly figure ever, after 4.9 trillion yuan was extended in January 2023.
Financial authorities are due to announce higher local bond quotas for this year, and this would provide another critically important source of financing for local construction.
