Policy-making and political supervision in Shanghai's financial industry

Journal of Contemporary China

Volumn 14, Issue 45, 2005, Pages 643-668

  Heilmann, Sebastian ^a,b,c  

^a UNIVERSITY OF TÜBINGEN   (Germany)

^b NANJING UNIVERSITY   (China)

^c SAARLAND UNIVERSITY   (Germany)

Author keywords

[No Author keywords available]

Indexed keywords

BANKING; INDUSTRIAL POLICY; POLITICAL ECONOMY;

ASIA; CHINA; EURASIA; FAR EAST; SHANGHAI;

EID: 29344442876     PISSN: 10670564     EISSN: 14699400     Source Type: Journal    
DOI: 10.1080/10670560500205944     Document Type: Article

References (89)

1. Renmin ribao, (13 January 1999).
2. For institutions of political control in national financial institutions see Sebastian Heilmann, 'Regulatory innovation by Leninist means: Communist Party supervision in China's financial industry', China Quarterly, No. 181, March 2005, pp. 1-21.
3. My research is, in addition to a wide range of written sources, based on 73 interviews that I conducted with financial professionals (state and party regulators, executives and staff of financial institutions, researchers, financial journalists, etc.) during six extensive research trips to Beijing and Shanghai in the period between March 2000 and December 2003.
4. For this term, see Barry Naughton, 'An economic bubble? Chinese policy adapts to rapidly changing conditions', China Leadership Monitor no. 9, (Winter 2004), p. 6.
5. shiji jingji baodao, (5 January 2004).
6. Data computed by Moody's Investor Service and CLSA Emerging Markets, quoted after Financial Times, (24 and 25 November 2003).
7. Naughton, 'An economic bubble?', pp. 1 and 6-7.
8. E.g. Gong Haocheng and Jin Dehuan, eds, Shanghai zhengquan shichang shinian [Ten Years of the Shanghai Securities Market] (Shanghai: Shanghai caijing daxue, 2001), pp. 62-70, 122-129, 189-202 and,
9. for the crucial period of administrative centralization (1997-2000), pp. 266-271.
10. Luo Jinsheng, Liyi jituan yu zhidu bianqian: Jianjin zhuangui zhong de zhongxiao shangye yinhang [Interest Groups and Systemic Transition: Small and Medium-sized Commercial Banks amidst Gradual Transformation] (Beijing: Zhongguo jinrong chubanshe, 2003).
11. Stephen Green, 'China's stock market: Eight myths and some reasons to be optimistic', China Project Report (London: The Royal Institute of International Affairs, February 2003), pp. 18-19.
12. Yet in his book-length treatment [Stephen Green, China's Stockmarket: A Guide to its Progress, Players and Prospects (London: Economist Books, 2003), pp. 83-84, 192], Green repeatedly points to interferences by CCP bodies.
13. For key documents on the tasks and rules of this not well known, but powerful Party body see CCP Central Financial Work Commission, Organization Department, ed., Dang de zuzhi gongzuo shiyong shouce [A Practical Handbook for CCP Organizational Work] (Beijing: Zhonggong zhongyang dangxiao, 1999).
14. A comprehensive source on the reorganization of the financial supervision system is: CCP Central Financial Discipline Inspection Work Commission, ed., Jinrong xitong zhifa zhiji wenjian huibian [A Collection of Documents on Law and Discipline Enforcement in the Financial System], Vol. 4 (1997); Vol. 5 (1998); Vol. 6a/b (1998/1999); Vol. 7; (2000) (Beijing: Zhongguo jinrong chubanshe, 2000).
15. That is why, along with the establishment of the new separate banking watchdog in spring 2003, the China Banking Regulatory Commission's branch offices were set up for each provincial-level unit again, thereby confirming the failure of the preceding supra-regional structure. See Caijing, (20 July 2003)
16. 21 shiji jingji baodao, (2 July, 15 August and 15 December 2003).
17. The CSRC's Shanghai Office had a staff of about 50 in 2002, the strongest section being the Inspection Department [jichabu]. Only two officials took full-time care of Communist Party affairs. Dissatisfaction with the loss of status that came with the centralizing reorganizations in 1998/1999 was not concealed during informal talks.
18. Cf. Zhongguo jinrong no. 12, (2002), pp. 29-30.
19. Zhongguo gaige bao, (18 March 2003).
20. Jingji guancha bao, (13 January 2003)
21. Zhongguo jingji shibao, (14 January 2003).
22. Actually, the first Financial Work Office of a provincial government was set up in northeastern Jilin Province already in 2000 under the slogan of creating 'Financial Safety Zones'. See Jinrong shibao, (25 June and 5 July 2002).
23. According to the Beijing Municipal Party Committee's Financial Work Commission, half of local financial firms had only an 'imperfect Party organization' or 'no Party organization at all' in mid-2000. This Party body therefore initially concentrated on recruiting new Party members and establishing basic-level Party organizations in the financial industry. See information given in Beijing dangjian, www.bjdj.gov.cn/ gbrc/gbtc27.htm, (accessed 3 October 2000).
24. Zhongguo jinrong no. 12, (2002), pp. 29-30.
25. Zhongguo jingji shibao, (15 November 2002).
26. Interview with DRC researcher in Beijing, December 2003.
27. Cf. Shanghai CCP Municipal Committee, Party History Research Office, ed., Zhongguo gongchandang zai Shanghai 80 nian [80 Years of the CCP in Shanghai] (Shanghai: Shanghai renmin chubanshe, 2001), pp. 927 and 932.
28. The foreign currency assets held by Shanghai-based Chinese and foreign financial institutions, after conversion into RMB Yuan, amounted to 10% of all assets held in the Chinese banking system. Data given by the Shanghai branches of the People's Bank of China and the CBRC. See Guoji jinrong bao, (13 January 2004).
29. See 21 shiji jingji baodao, (8 October 2003).
30. At the end of November 2003, the Shanghai FWPC adopted an 'action plan for advancing the establishment of Shanghai as an international financial center' detailing the work objectives and measures that Shanghai's Party and government financial work bodies are supposed to achieve within the next three years. 'Shi jinrong dangwei zhaokai dangwei kuodai huiyi' ['The municipal financial work party committee convenes an enlarged meeting'], (24 November 2003), report posted as a temporary file on http://sjr.sh.gov.cn.
31. For Dai's efforts in Tianjin see: Jinrong Shibao, (5 June 2003)
32. 21 shiji jingji baodao, (12 November 2003).
33. Shanghai CCP officials often speak of the 'Three Party Core Groups' installed in the Municipal Government, the Municipal People's Congress and the Municipal People's Consultative Conference. Meetings of the Municipal Party Committee's Secretaries (shiwei shuji hui) are formally not allowed anymore to usurp the decision-making powers of the Standing Committee. For the formal power relations between municipal party and state bodies, see Shanghai CCP Municipal Committee, Zhongguo gongchandang zai Shanghai 80 nian, pp. 1049-1050.
34. For the general role of CCP bodies in municipal decision-making see also Yin Yanhua, Xiandai chengshi zhengfu yu chengshi guanli [Modern City Government and City Management] (Shanghai: Shanghai daxue, 2003), pp. 160-162.
35. As of year-end 2003, this was Feng Guoqin who concurrently was a Standing Committee member of the Municipal CCP Committee.
36. In the translation of this term I follow Wei Li, The Chinese Staff System (Berkeley: Institute of East Asian Studies, 1994).
37. Interviews with regulatory officials in Shanghai, January and October 2002.
38. As of year-end 2003, a former bank manager, Ji Xiaohui, served as FSO Director and concurrently as Municipal Government Deputy Chief of Staff. Ji formerly was head of the Shanghai branch of the Industrial and Commercial Bank and was transferred to the Municipal Government to take care of boosting Shanghai as a financial center.
39. Guoji jinrong bao, (12 September 2002). The FWPC's Secretary, Ms Yang Dinghua, actually was the only Party member from Shanghai's financial system who participated as a delegate in the 16th National Party Congress. In 2003, Ms Yang retired and was replaced as FWPC Secretary by Mr Wu Ming.
40. Some regulatory officials saw this leadership arrangement as setting a new trend to define Party Secretary work as an important yet specialized function, not as implying overall decision-making authority anymore. But to my knowledge, this explorative redefinition has not been confirmed by a Party document yet.
41. In some regional centers, such as Chongqing Municipality, representatives of central government supervisory bodies were regularly invited to attend meetings of the Municipal Leading Group in charge of the financial industry; see 21 shiji jingji baodao, (14 April 2003). However, this was not the practice in Shanghai.
42. This body was established in June 1994 and until March 2000 also took care of Shanghai's financial industry. For the evolution of municipal Communist Party working bodies, see Shanghai CCP Municipal Committee, Party History Research Office, ed., Zhonggong Shanghai dangshi dadian [Canon of CCP Shanghai Party History] (Shanghai: Shanghai jiaoyu chubanshe, 2001), pp. 674-675. The secretive FWPC typically is not mentioned in this work but the Comprehensive Economic Work Party Committee is.
43. Until spring 2003, the FWPC was in abbreviated form called jinrong dangwei as well as jinrong gongwei in official reports and documents, the second term being a formal analogy to the zhongyang jinrong gongwei. After the dissolution of the Central Financial Work Commission in March 2003 and subsequent reorganizations in the Shanghai CCP apparatus in August 2003, the short name jinrong gongwei was disused and officially substituted by jinrong dangwei.
44. Shanghai jinrong bao, (15 September 2000).
45. The information in the following paragraphs therefore is based on what financial professionals and regulators know about the FWPC through their business and administrative contacts with this Party body.
46. Actually Minsheng Bank's main political 'patron' is the Federation for Industry and Commerce (FIC, gongshanglian) that in turn is subordinate to the supervision of CCP United Front Departments on the different administrative levels. Good connections with leading CCP personnel is the key to the FIC's increasing political and economic weight. Thus Minsheng Bank also cultivates close relations with CCP bodies and CCP leading cadres.
47. See Ellen Hertz, The Trading Crowd: An Ethnography of the Shanghai Stock Market (Cambridge: Cambridge University Press, 1998), pp. 63, 66-67.
48. Interviews with securities dealers, Shanghai, 2000-2003.
49. In 2002, Beijing chenbao, (21 January 2002), reported that the Beijing Municipal CCP Financial Work Commission had played an active role in the expansion of the local consumer credit business.
50. Press release of the municipal government on implementing the 'Plan for reforming municipal institutions' [Shanghai shi jigou gaige fang'an], (2 and 16 August 2003) (also posted on the official website www.shanghai.gov.cn).
51. Cf. Jinrong Shibao, (11 September 2002)
52. 'Shanghai jinrong gaikuang' ['Basic facts on Shanghai's financial business'], information posted on the FSO-managed website http://sjr.sh.gov.cn, (accessed 2 September 2003).
53. The Shanghai chongzuban had been in charge of major enterprise restructuring projects undertaken in the preceding years. It had been established by incorporating staff from the former Shanghai Municipal Securities Regulatory Office (this had been dissolved and integrated into the national CSRC hierarchy in 1999 but without taking over the entire staff). Interviews with financial regulatory officials, Shanghai, October 2002.
54. Interviews with financial professionals in Shanghai, December 2003.
55. Interviews in Shanghai, December 2003. Citibank and HSBC received official approval to issue dual currency credit cards in January 2004.
56. An internal document 'Some measures to strengthen the service and encouraging financial institutions to move to Shanghai' was mentioned in a report published on the Shanghai government's website on 9 February 2003, see www.shanghai.gov.cn/gb/shanghai/node2314/node2315/node4411/ userobject21ai13121.html.
57. Cf. Jinrong Shibao, (11 September 2002)
58. 'Shanghai jinrong gaikuang', as quoted above.
59. See 'Zhonggong zhongyang guanyu wanshan jinrong xitong Dang de lingdao tizhi, jiaqiang he gaijin jinrong xitong Dang de gongzuo you guan wenti de tongzhi' ['Circular of the CCP Center on problems related to optimizing Party leadership structures in the financial system and strengthening and improving Party work in the financial system'], (19 May 1998), in CCP Central Financial Work Commission, Dang de zuzhi gongzuo shiyong shouce, pp. 190-193.
60. In this typical arrangement, local governments are called 'indirect largest shareholder' [jianjie di yi da gudong] by market professionals. For such a role of the Shenzhen Municipal Government in Shenzhen-based financial companies, see Xinwen Zhoukan, (10 July 2002).
61. The FWPC's control over executive appointments is confined to financial companies directly under the purview of the Shanghai government. It is in control neither of the Shanghai branch offices of national financial companies (these are overseen by central government regulators), nor of financial companies that are controlled by other local governments or institutional shareholders from outside Shanghai, nor of the subsidiary offices or joint-venture companies established by foreign financial corporations. See also Figure 1.
62. Cf. Green, China's Stockmarket, p. 82.
63. Interview with a securities dealer and a senior financial consultant in Shanghai, December 2003. See also 21 shiji jingji baodao, (26 February 2004).
64. See Heilmann, 'Regulatory innovation by Leninist means'.
65. Executives installed by central government bodies are nicknamed 'paratroopers' [kongjiangbing] in Shanghai's financial industry and seen with suspicion, at least in the first few months of their work in Shanghai when they have to prove their adaptability in the tough new environment.
66. See www.shanghai.gov.cn/gb/shanghai/node2314/node2319/node2404/ node9625/ node9629/userobject26ai607.html, (accessed 18 December 2003).
67. Cf. Shanghai CCP Municipal Committee, Organization Department (1999), 'Guanyu jiaqiang he gaijin benshi guoyou konggu shangshi gongsi gaoji guanli renyuan guanli de ruogan yijian' ['Some suggestions on strengthening and improving the administration of senior management personnel in listed companies that are Shanghai state-owned holdings'], in Leading Group for Asset Restructuring in Shanghai's Listed Enterprises Office, ed., Zhengquan fagui huibian [Collection of Securities Laws and Regulations] (Beijing: Zhongguo jinrong chubanshe, 2002), p. 281.
68. Other documents dealing with senior personnel issues can be found in this volume on pp. 283, 335.
69. A survey conducted by researchers of the Shanghai stock exchange among listed companies appears to be misleading. This survey was quoted by some authors (e.g. Green, China's Stockmarket, pp. 122-124) for assessing how directors were appointed from 1996 to 1999. The survey suggested that government bureaus' influence on executive appointments was decreasing. But the politically more sensitive issue, the role of CCP cadre departments in appointment processes, was not included in the questionnaire.
70. A key mediating role is analogously fulfilled by the Beijing Municipal Party Committee's Financial Work Commission, according to interviews conducted with two senior fund managers in Beijing, January 2002.
71. Interviews with securities professionals, Shanghai, January 2002.
72. For the story of the attempted irregular privatization at Junan, see Green, China's Stockmarket, pp. 81-82.
73. See 21 shiji jingji baodao, (4 March 2003); supplemented by interviews conducted in Shanghai in March 2003.
74. Interviews with financial professionals, Shanghai, March and December 2003.
75. An investigative report on the controversial appointment process at Penghua Fund Management Co. was carried in 21 shiji jingji baodao, (12 July 2002); supplemented by interviews with fund managers familiar with the case in Shanghai.
76. Interview with an investment banker, Shanghai, March 2003.
77. The most prominent examples as of 2003 were the son of Zhu Rongji who had a senior executive position in China International Capital Corporation, the daughter of Hua Jianmin who headed the investment banking department of Guotai Junan Securities and the wife of Dai Xianglong who was a senior executive in Haitong Securities.
78. Interview with a senior manager of a financial firm, Shanghai, October 2002.
79. This Party body was under the dual leadership of the Central Financial Work Commission and the CCP Central Discipline Inspection Commission. The CFDI was dissolved in March 2003 along with the Central Financial Work Commission and most of CFDI's staff was transferred to the CCP's Central Discipline Inspection Commission. See Caijing, (5 April 2003), pp. 77-78.
80. Actually the CCP structures for discipline inspection in the financial industry constitute a large system. In 1998, the Central Bank's discipline inspection system alone had a staff of more than 4,300. See Zhongguo jinrong no. 12, (1998), pp. 43-44.
81. Shanghai Financial System Discipline Inspection Commissioner's Office, 'Yi gaige de jingshen tansuo jinrong jijian jiancha gongzuo de xin luzi' ['In the spirit of reform exploring new ways in discipline inspection work'], in CCP Central Financial Discipline Inspection Work Commission, ed., Jinrong jijian jiancha gongzuo lilun yanjiu [Theoretical Research on Financial Discipline Inspection Work] (Beijing: Zhongguo jinrong chubanshe, 2000), pp. 503-510.
82. Shanghai's Police is said to have made heavy IT investments in recent years. Interviews, Shanghai, October 2002. In Beijing, the Municipal CCP Financial Work Commission also introduced some fresh preventive measures for fighting financial crime. It organized group visits for managers to state prisons and talks with financial criminals held there, with the aim of 'on-site education'. See report posted on www.bjsupervision.gov.cn, (accessed 10 September 2003).
83. Jinrong shibao, (5 August 2002).
84. Guoji jinrong bao, (15 July 2003). In autumn 2003, the FWPC also investigated the Zhou Zhengyi real estate affair and its implications for Shanghai's financial industry. But FWPC investigators appeared not to be up to the task: Some officials called well-informed financial journalist to ask 'what was going on at all' in the Zhou affair. The FWPC gave the impression that it did not have the necessary insider knowledge of the rules of the game and of the deals made in Shanghai's financial and real estate industry.
85. Similar assessments are also raised within discipline inspection bodies. See the sober analysis of deficiencies by Hao Jun, 'Dui woguo jinrong jiancha tizhi xianzhuang de sikao' ['Reflections on the present situation of China's financial inspection system'], in CCP Central Financial Discipline Inspection Work Commission, ed., Jinrong jijian jiancha gongzuo lilun yanjiu, pp. 493-502, who also presents a concise introduction to the complex history and structure of the discipline inspection system within China's financial industry.
86. Interview with a senior bank manager, Shanghai, December 2003.
87. For a similar argument see Victor Shih, 'The Chinese banking sector: current evaluation and future outlook', Harvard University, Department of Government, unpublished paper, (2001), p. 10
88. Naughton, 'An economic bubble?', pp. 6-7.
89. Cf. a rare critical public commentary on CCP appointment of bank managers in Zhonghua gongshang shibao, (25 June 2003).