A New Era: China Merges Business & Military? Wall Street Giants' ‘China Dream’ Shatters!

A resident in Zhaoqing, Guangdong threw a large amount of cash from the balcony. Private enterprises in Inner Mongolia create People's Armed Forces Department. CCP builds firewall. Wall Street isolates its operations in China. Fitch downgrades four Chinese state-owned asset management companies. It's all covered in today's China Truths. A resident in Zhaoqing, Guangdong threw a large amount of cash from the balcony. On the 3rd, a video circulating online depicted a resident of Shunjing Garden Community in Guangning County, Zhaoqing, Guangdong, tossing a significant amount of cash from their balcony. Cash was strewn across the floor, but the nearby residents refrained from picking it up. A local merchant present at the scene informed Chinese media that indeed someone had thrown money at that time, but they were unaware of the reason, and no one dared to pick it up at the scene. A staff member from the Zhaoqing Municipal Public Security Bureau also confirmed receiving a report about the incident. On the morning of the 4th, a staff member from the propaganda department of the Guangning County Party Committee stated that the family experienced heightened emotional swings due to some trivial matters. The money thrown was genuine, but there was no one around to seize the opportunity. Since the onset of the epidemic, incidents of money being thrown have continued to unfold in mainland China. For instance, in February 2020, a video circulated on the internet showing people in a particular location throwing money from a tall building. In April, a man threw money from the rooftop of a high-rise building near Xinzhu Road in Jinan, Shandong Province. He did so for an extended period and expressed an inclination to jump off the building. In January 2022, a man from Tianjin, restricted in Hangzhou, Zhejiang due to the epidemic, threw money into the streets while inebriated to vent his frustration. Private Enterprises in Inner Mongolia Create People's Armed Forces Department According to a report by the Inner Mongolia Daily, Chinese dairy giant Yili Group formed its internal People's Armed Forces Department on December 29, 2023, referred to as the Armed Forces Department. This is the first private enterprise in Inner Mongolia to establish a People's Armed Forces Department. Local officials, including Bao Gang, Secretary of the Hohot Municipal Party Committee, Yang Xiaokang, Political Commissar of the Inner Mongolia Military Region, and Huang Jichang, Executive Vice Chairman of the Autonomous Region, participated in the unveiling ceremony. Huang Jichang expressed the hope that Yili Group's Armed Forces Department would remain mindful of its responsibilities and mission, leverage the political advantages and powerful influence of the Party's management of the Armed Forces, and establish the Armed Forces Department with the same prominence and high quality as the Yili brand. The report indicates that establishing the Armed Forces Department at Yili Group is a significant step in implementing the Xi Jinping thought on strengthening the military by the Party and Government of the Autonomous Region. The Armed Forces Department refers to the military department established by China at the county and township levels and in other large organizations, such as state-owned enterprises and schools. It is responsible for conscription, leading local militia, and managing small arms depots in various locations. In border counties, the Armed Forces Department may also lead active Chinese military organizations, such as border defense battalions and border defense companies. The People's Armed Forces Department has historically played two roles—as a militia, providing mobilizable forces during wartime and as a monitoring and suppressing force against societal reactionary elements. As China's economy experiences a downturn, unemployment rates rise, and public discontent grows, many state-owned enterprises are re-establishing People's Armed Forces Departments internally, against the backdrop of Xi Jinping's emphasis on strong military thought. Notably, on August 1, 2023, Guangdong Huizhou Water Affairs Group Company, Ltd., Huizhou Transportation Investment Group Company, Ltd., and Huizhou Urban Construction Investment Group Company, Ltd. officially formed People's Armed Departments. On August 31, Wuhan Agricultural Group also established a People's Armed Department, emphasizing the need to align with Xi Jinping's military-strengthening ideology. The group mentioned that since early 2023, nine state-owned enterprises in Wuhan had established similar departments. Inner Mongolia Mingyue Group also set up a People's Armed Department on May 26, a few months prior. In September of last year, Shanghai Qingtu Group established a People's Armed Department with the aim of strengthening the construction of National Defense Reserve Forces. The founding ceremony included seven individuals on the podium, consisting of four CCP military officers and three high-level executives of Shanghai Qingtu Group. On October 26, 2023, Wu Qian, director of the Information Bureau of the Chinese Ministry of National Defense and spokesperson for the Ministry of National Defense, stated that China's national defense is the defense of the entire nation. The People's Armed Department of state-owned enterprises is an integral part of the national defense system, the armed working department of the party in state-owned enterprises, and the conscription agency of the government in state-owned enterprises. In response to this, Feng Chongyi, a China Studies scholar and associate professor at the University of Technology Sydney, believes that the CCP's primary goal in re-establishing people's armed departments is to eliminate potential instability factors that could lead to social unrest. Voice of America also quoted former Chinese Navy Colonel Yao Cheng, who pointed out that China's move is primarily aimed at ensuring that large state-owned enterprises leave no gaps, governing the people with the people, managing regions with local forces, and preventing domestic disturbances and inadequate support in the rear during an expanded-scale war. CCP Builds Firewall, Wall Street Isolates Its Operations in China The Chinese Communist Party is building a firewall, causing Wall Street to isolate its business in China. It is reported that the largest Wall Street bank has ceased sharing sensitive corporate information with its Chinese subsidiaries to prevent Beijing from stealing or demanding information. The escalating geopolitical tensions between China and the United States, coupled with new regulations established by Beijing under the guise of national security, are prompting American and European banks to seek ways to reduce the risks of doing business in China. They are now ring-fencing, also known as isolating or fencing, their Chinese operations, a level of separation rarely seen in modern international financial history. Ring-fencing is a financial term that involves separating certain businesses or assets within a company to protect them from broader risks or regulatory changes. However, as they further detach from their banking subsidiaries established in the mainland for decades, European and American banks find themselves compromising their competitiveness and increasing operational costs, putting them at a disadvantage. According to a Bloomberg report on Thursday, the largest Wall Street bank has halted the communication of sensitive corporate strategies to its Chinese subsidiaries' leaders, preventing Beijing from eavesdropping or demanding detailed information. Additionally, top executives from Wall Street banks are investing millions of dollars in preserving financial data locally near their other American and European bank branches in China, establishing on-site internal control mechanisms. Some departments within the banks are even considering restructuring their balance sheets to separate them from their subsidiaries in China. As these actions are sensitive and impactful, more than a dozen Wall Street executives and other insiders interviewed for the report chose to remain anonymous. The China dream of Wall Street giants is shattering. Bloomberg writes, In short, this is undermining the dream that Wall Street giants pursued a few years ago. In 2020, as part of the U.S.-China phase one trade deal, Beijing announced relaxation of regulations on the banking sector, allowing foreign investment banks to establish wholly-owned subsidiaries in China. This commitment was overdue by 20 years. However, foreign bank executives subsequently discovered that reality fell far short of expectations. With the slowdown of the Chinese economy and constant policy changes in Beijing, Wall Street's efforts to enter China became more challenging, and their branches established in China struggled to compete fairly with domestic Chinese giants. The most pressing concern for European and American banks is how to comply with the strict new regulations imposed by the Chinese Communist Party, which limit the cross-border transmission of data from mainland China. This has forced many foreign asset management companies to establish data centers in China, increasing operational costs and management obstacles. Bloomberg reported last December that Citigroup had to postpone its plans to establish a wholly-owned securities business in China to address information separation and technology localization issues. Additionally, other companies such as Goldman Sachs and UBS have been working for years to address similar challenges. For these global banks, the complex financial systems they invested billions of dollars in building in the past are their advantage and can be used to trace money laundering or other illegal activities. However, because Beijing restricts the flow of China-related data internationally, these banks will be unable to perform these routine tasks. Furthermore, Beijing's new regulations may hinder the transmission of detailed customer information, internal financial data, and even employee information. According to industry estimates, the cost of managing such systems locally under CCP control could skyrocket by 30 percent. Fitch Downgrades Four Chinese State-Owned Asset Management Companies On Thursday, January 4, Fitch, the international rating agency, downgraded the default ratings of China's four major state-owned asset management companies, citing poor financial performance, diminishing central government support, and a sluggish real estate market. Fitch lowered the issuer default ratings, IDRs, of China Senda Asset Management and China Orient Asset Management from and also downgraded the IDRs of China Huarong Asset Management and China Great Wall Asset Management from BBB Plus to BBB. These four entities, commonly known as bad-debt managers, emerged after the Asian financial crisis. The government's decades-long policy of providing loans to state-owned enterprises has brought the largest state-owned commercial banks to the brink of bankruptcy. However, it also presented an opportunity for these bad-debt managers to expand, creating complex subsidiary structures for other financial ventures and borrowing substantial amounts from the bond market. Fitch analysts noted in a report, The downgrade reflects our view that, considering the poor financial performance and inadequate capital controls of some asset managers, and the inconsistency in the Chinese Communist Party CCP government's supportive stance towards the sector, the government's inclination to provide timely extraordinary support to state-owned asset management companies has weakened. The report stated, We believe these dynamics have diminished the ability of asset managers to effectively fulfill their policy roles of purchasing distressed assets within the system. Fitch also suggested the possibility of further downgrades for these four companies in the future. Fitch highlighted issues in China's real estate market and the slow economic recovery in 2023, posing additional challenges for asset managers. While rating agencies anticipate a recovery in the financial health of these companies, the speed of recovery is contingent on the revival of the real estate sector. China's real estate market has faced a downturn for three years, witnessing defaults from prominent developers like China Evergrande and Country Garden. The entire industry grapples with strict funding regulations and a decline in homebuyer confidence. Official CCP data reveals that non-performing loans at Chinese commercial banks reached a record 3.2 trillion yuan for $147 billion by the end of September 2023, under the prolonged economic downturn and the pressure from the real estate crisis. Don't forget to leave a comment in the section below to share your opinions on today's topic with us. Make sure to like and subscribe to see more interesting topics from China Truths.