For the 300 or so Wall Street bosses packed into the grand ballroom at Hong Kong’s Four Seasons Hotel this week, the message from China couldn’t have been more welcoming.

Addressing the room via a pre-recorded video link, Vice Premier He Lifeng, the country’s newly-minted economics czar stressed “China’s charm and Hong Kong’s charisma.” With the Chinese economy on track to meet its growth target this year, he urged the guests to “speak freely” and find solutions to global challenges.

Yet if the choice of venue for the conference — where Chinese-Canadian billionaire Xiao Jianhua was abducted by Chinese police in 2017 — were not jarring enough, the 68-year old He’s words certainly were. 

His sanguine tone stands in contrast with the stern message Beijing is delivering to bankers back home, where an ongoing clampdown has ensnared dozens of top finance officials and high-profile bank executives this year alone. This spread of Xi Jinping’s years-long anti-graft drive has sent a chill through the $60 trillion financial sector at a point when — despite He’s confidence — a property sector slump is threatening both China’s growth and the health of its banks.

The latest industry head to roll is that of Zhang Hongli (also known as Lee Zhang), who until 2018 was a vice president at the Industrial and Commercial Bank of China, the world’s largest bank by total assets. Zhang is being investigated for alleged violations of discipline and laws, the Central Commission for Discipline Inspection (CCDI) said in a terse statement on Monday. 

Before joining ICBC, Zhang was an executive at Deutsche Bank, where he aggressively hired Chinese princelings and showered Chinese officials with gifts, The New York Times reported in 2019.

“Zhang had a foot in both foreign and state-owned banks, which is a very small community to begin with,” says Shen Meng, a director at Beijing-based investment bank Chanson & Co. “It is likely he’s not being singled out, but rather, implicated as part of a larger investigation.”

Monday’s announcement followed a spate of probes into other top bankers, some of whom worked at ICBC around the same time as Zhang. 

The top four state-owned commercial banks are the “holy of holies” in terms of systemic importance to China’s financial system, so any evidence of corruption at these institutions is of special concern to Beijing, says Gabriel Wildau, New York-based managing director at advisory firm Teneo.

“China’s top leadership appears to take a broad view of what constitutes corruption in the financial system,” says Wildau. “Loans and investments that do not explicitly violate laws or regulations may nevertheless be viewed as improper or corrupt if they undermine key political or industrial policy objectives, especially if these investments also benefit powerful private business interests.”

Back in the old days, people used to say, if you took some money while you were in office, if you retired, there was this kind of tacit let bygones be bygones. [Now] it is we’re going to go after you no matter what.

Andrew Wedeman, a political science professor who studies Chinese corruption at Georgia State University

Some view the takedowns as part of Xi’s campaign to root out corruption since he came to power in 2012. “What we see now can be seen as a continuation of previous anti-corruption momentum started since the 18th Party Congress [in 2012],” says Jiangnan Zhu, an associate professor of politics at University of Hong Kong, noting Xi’s repeated emphasis on corruption as a threat to financial security. 

The broader anti-graft drive appears to have regained momentum. Some 42 high-ranking officials have been purged this year, notes Andrew Wedeman, a political science professor who studies Chinese corruption at Georgia State University — almost equal to the peak of 47 in 2015. Among the most high-profile cases, China’s state broadcaster confirmed last month that defense minister Li Shangfu and foreign minister Qin Gang had been ousted, without offering an explanation. 

Often probes have been launched even if the accused’s alleged offenses took place several years ago. 

“Back in the old days, people used to say, if you took some money while you were in office, if you retired, there was this kind of tacit let bygones be bygones,” says Wedeman. “[Now] it is we’re going to go after you no matter what. There is no statute of limitations.” 

The fresh anti-corruption drive is taking place against the backdrop of China’s overhaul of its financial regulatory framework, a move designed to give the Party more oversight as the country navigates a series of economic crises, including sluggish growth, the property bubble’s deflation, a mountain of local government debt and the worst capital outflow levels in years. 

In May, Beijing set up a super-regulator, the National Administration of Financial Regulation, to centralize supervision of the sector, allowing it to take over certain functions of the central bank with more enforcement powers: It already has plans to dispatch 2,000 teams to inspect 2,500 banking institutions. The revamp also includes the setting up of two new financial supervisory bodies headed by He Lifeng — a close confidante of Xi — which answer to the CCP’s Central Committee directly. 

Speaking at a key financial policy gathering in late October, Xi said that the sector is “the lifeblood of a nation’s economy” and crucial to China’s competitiveness. Signaling a tightening of the reins, he cited financial disorders, corruption and weak supervision as intertwining problems and stressed the need for Party cadres to be “loyal, upright and responsible.” 

Already, state media reported last week that government officials have been banned from investing in or taking roles in domestic Chinese private equity funds. 

Neil Thomas, a fellow at Asia Society Policy Institute’s Center for China Analysis, says the crackdown is driven by legitimate concerns and a genuine desire to improve financial regulation, but doesn’t rule out the possibility of a broader additional political agenda.

“There’s a good case to be made that China’s business sector needed a lot more regulation and had previously been able to indulge in very anti-competitive practices and very questionable financial arrangements, that arguably would be regulated in any kind of developed economy,” Thomas says. “In terms of exact people and firms being targeted, that’s murkier and may well have significant political angles.”

This is like rubbing salt into the wound, because this just shows the naked power of an autocratic state.

George Magnus, an independent economist and research associate at Oxford University’s China Center

His view is echoed by George Magnus, an independent economist and research associate at Oxford University’s China Center. “There has been both a determined effort to de-risk the financial industry and to politicize the regulatory side of the industry so that it doesn’t ‘misbehave’,” Magnus says. “But also, you can never really divorce that from the more personal targeting, which inevitably happens.” 

For Benjamin Qiu, a lawyer with two decades of experience in venture capital financing and cross-border transactions involving Chinese firms, the CCDI’s warning in February to local bankers against “hedonism and extravagance,” along with star investment banker Bao Fan’s disappearance the same month, were early indications of the shake-up to come. 

A recent social media post from China’s Ministry of State Security, where it lambasted “naysayers” for spreading pessimistic views about China’s economy and triggering financial turmoil, suggested the clampdown “has not peaked yet,” Qiu says. “Once you see that, as a lawyer or as any business person, you wonder what’s going to come next.”

For all the talk about financial security, the crackdown has done little to shore up investor confidence. China recently recorded its first-ever quarterly deficit in foreign direct investment since 1998, as multinational companies repatriate earnings. New listings on Hong Kong’s stock market raised HK$ 24.6 billion in the first three quarters of this year, the lowest in two decades. Meanwhile, China saw an exodus of 10,800 millionaires in 2022 and is expecting another net loss of 13,500 this year, higher than any other country, according to a report by London-based investment migration consultancy Henley & Partners. 

While foreign investors generally don’t mind anti-corruption efforts, they are concerned about arbitrary targeting and the lack of transparency and due process, Magnus says. “This is like rubbing salt into the wound, because this just shows the naked power of an autocratic state.”

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