China Plans Twice-a-Decade Financial Policy Conference Next Week

China plans to convene a key financial policy gathering which takes place once every five years early next week to prevent risks and set medium-term priorities for the $61 trillion industry, according to people familiar with the matter.

(Bloomberg) — China plans to convene a key financial policy gathering which takes place once every five years early next week to prevent risks and set medium-term priorities for the $61 trillion industry, according to people familiar with the matter.

State leaders, regulators and top bankers will gather at the closed-door national financial work conference in Beijing on Oct. 30-Oct. 31, said the people, asking not to be identified discussing a private matter. Officials led by President Xi Jinping are poised to focus on resolving financial risks, including the property crisis and the spiraling debt at local government financing vehicles, said the people.

The meeting will provide more clarity on how Chinese authorities intend to turn around the world’s second largest economy without stoking unintended risks. Maintaining financial stability is paramount at a time when China is grappling with the fallout from a protracted property market slowdown and a worsening crunch in the $9 trillion local government debt market.

China watchers have paid special attention to the conference in the past because of the impact and influence it has on the country’s banking system and broader economy. First introduced in 1997 in the wake of the Asian financial crisis, the conference’s overarching goal is to push for reforms to aid economic growth and safeguard stability.

Investors are also counting on upcoming events including the politburo meeting and Third Plenum of the Communist Party of China, and a potential meeting between Xi and US President Joe Biden at the APEC Summit next month for policy catalysts.

The National Administration of Financial Regulation didn’t respond to a request seeking comment.

Over the past year, China’s government has enlisted the nation’s largest state banks to shore up the economy with cheap loans and mortgage rate cuts, though the recovery remains fragile due to weak domestic demand. They’ve also ordered the lenders to help ease credit crunches in the property and LGFV debt market, a move that some analysts warned could be a drag on the systematically important lenders.

China’s local governments were bogged down as slumping land sales and massive Covid-induced expenditures have weakened their ability to keep their financing vehicles afloat. Local authorities are finding it more expensive to sell bonds this year, the latest sign of rising stress in the market.

Investor pessimism is mounting. The benchmark CSI 300 Index slid more than 4% last week, its worst in a year, erasing all the gains seen during its epic reopening rally that took off late last year. The selloff came despite the slew of market-boosting policies, including a liquidity injection by the central bank and tightening of curbs on short-selling activities by the securities regulator.

Excess Leverage

China last held its financial work conference in 2017. Since then, policymakers have relentlessly cracked down on excessive leverage and risk-taking in the broader financial sector, crippling growth at finance giants such as Ant Group Co. and pushing real estate developers such as China Evergrande Group to its knees.

It unveiled in March a new national regulator to step up oversight over the financial sector to prevent and defuse risks, a shake-up that gave the Communist Party a firmer grip on the sector and centralized key policy decision-making under Xi.

Authorities had also intensified scrutiny over the financial industry since 2021 to tackle corruption, ensnaring over a hundred financial executives and regulators this year.

The financial work conference has grown in importance in recent years, with the 2017 conference presided over by Xi himself, while the preceding ones were overseen by China’s premiers. This year’s meeting will occur after the twice-a-decade Party congress in late 2022 where Xi secured a third term and consolidated his leadership.

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