Under the direction of President Xi Jinping, China is expanding its probe into its financial institutions after placing the former chairman of the Bank of China (HK:3988 and (BACHY) ) under investigation for corruption.
In a terse statement, China's official news service Xinhua said last Friday that Liu Liange, the former chairman and Communist Party secretary at the Bank of China, is "under investigation for suspected severe violations of Party discipline." It's the kind of language used when someone is suspected of bribery and abuse of their position.
The Bank of China, one of China's "Big Four" financial institutions, scurried on Friday to announce that Ge Haijiao has been named Liu's successor as Communist Party secretary. That's normally the first step before becoming chairman of one of the big state-owned banks. Ge is a vice governor of northern Hebei Province and a past president at China Everbright Bank (HK:6818).
On Monday, there was word that Huang Xianhui, the former general manager and Communist Party chief at the Beijing branch of China Huarong Asset Management, is also under investigation for serious violations of law.
China Huarong was set up by the government to dispose of bad assets after the Asian financial crisis. However, it has run into trouble in the past. Its chairman Lai Xiaomin was placed under investigation in 2018 and later charged with bribery, corruption and bigamy, ultimately resulting in his execution in January 2021.
The probes into Liu and Huang follow hot on the heels of the disappearance of leading tech-focused investment banker Bao Fan, who vanished in February, with his company China Renaissance Holdings (HK:1911) confirming that he is "cooperating in an investigation," as I explained at the time. Bao is a top tech dealmaker but not necessarily the subject of that investigation; he reportedly is assisting with the probe into Cong Lin, the former president of China Renaissance.
Although the Chinese Communist Party promised at its annual agenda-setting meeting in March to stimulate the private sector, there's a concurrent scrutiny of the finance industry. The party has proven time and time again that it only will let the private sector function at the party's direction, pledging to crack down on the "disorderly expansion of capital."
Officials from the finance watchdog China Banking and Insurance Regulatory Commission and the anti-corruption body Central Commission for Discipline Inspection called in top executives from at least six major state-owned banks to help with the investigation into Liu, Bloomberg reports on Monday, citing sources "familiar with the matter."
The authorities warned at that meeting on Friday that the probes into the US$60 trillion Chinese finance industry will only deepen. According to Bloomberg's sources, the authorities cautioned bankers to draw lessons from Liu, reminding them to strengthen self-discipline, which sounds a lot like an admonishment to stop taking bribes.
One problem with the structure of the Communist Party dictatorship in China is that it leaves power in the hands of officials who don't contribute economically but can always have their hand out looking for something to grease the wheels of power. While corruption is therefore a persistent problem plaguing the party, Xi also uses such investigations to probe and remove his enemies.
At least 20 finance executives have been investigated or penalized since late February, according to Bloomberg's tally. The investigations into the finance industry began in late 2021 and continue to intensify after Xi won a third term as president.
A new Communist Party entity, the Central Financial Commission, was announced in March to supervise the Chinese financial system. It puts even more power in the hands of Communist Party officials, taking over the role of the Financial Stability and Development Committee, an entity that previously fulfilled a similar role but was technically part of China's civil-service bureaucracy, not the Communist Party.
It isn't known what is triggering the corruption investigations into bank executives and officials. The net effect, however, is to consolidate power over the financial sector in the hands of Xi as former Communist Party loyalists now stack China's cabinet, the State Council, giving Xi control of both the executive branch and the civil service sector as this probe into high finance continues.
