As I see it | China battens down the hatches as financial risks mount at home and abroad
- While major financial troubles have eluded China in the past two decades, Beijing’s concerns over the possibility of a financial crisis have grown
- China’s new financial framework unveiled during and after the National People’s Congress shows Beijing’s determination to fend off financial risks
One unique thing about China is that the world’s second-largest economy, up until now, has managed to dodge all recent financial crises.
While stock market swings, small bank failures, and sporadic financial troubles have happened in China in the past two decades, the country has yet to encounter a Minsky Moment or an incident on the scale of the collapse of Lehman Brothers, which typically leads to market meltdowns, economic recessions and social turmoils in a capitalist economy.
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Beijing’s concerns over the possibility of a financial crisis hitting China, however, have grown. Will the country, which has followed the US model in developing its financial markets, eventually have a bad day, with an individual event leading to a systemic meltdown?
And if that day comes, will the ruling Communist Party have the capability and means to fix those problems without bringing upheavals to the entire society? These are the unspoken worries driving Beijing’s policies and measures.
The decision to create the Central Financial Commission and the Central Financial Work Commission is set to bring the country’s financial affairs and cadres under the close watch of the Communist Party. That is set to have a far-reaching impact on China’s financial industry and its interaction with the rest of the world.
