China is remaking its financial system, Plus Vietnam's China problem threatens US trade deal -- China Boss News 5.30.25

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What happened?

China is remaking its financial system with unmistakable force.

Nearly 5% of rural banks have been shut down in the past year, and one-fifth of securities firms’ assets are now tied up in mergers.

In Shanghai, regulators are nudging Guotai Junan and Haitong—two heavyweight brokerages—into a merger poised to reverberate globally.

It’s not reform-as-usual, but one of the most ambitious financial overhauls in decades, carried out with a distinctly Xi Jinping signature: methodical, strategic, and ruthlessly state-driven.

George Magnus of Oxford University notes that bigger banks and brokerages could be key in managing risk and guiding financial policy through turbulent times.

But for Xi, the motive is deeper.

He believes that finance has strayed too far into self-interest. It should, he insists, serve national development and the Communist Party—not bankers or clients.

“Finance must serve the real economy,” Xi said last year. “If it only feeds itself, it becomes water without a source, a tree without roots—and crisis will follow.”

In essence, the industry, once profit-driven, is being repurposed.

Why it matters.

Systemic risk

China is reshaping its financial system at a moment of acute internal and external strain.

Just as it faces daunting challenges—hidden local government debts, bad loans tied to the real estate meltdown, and slowing growth—it is also losing many globally trained bankers and regulators.

These are the professionals best equipped to manage the complexities now unfolding.

Yet Beijing’s top priority isn’t technocratic finesse—it’s control.

China’s authoritarian regulators' mission is clear: to impose order on a chaotic credit system that has inflated bubbles, widened inequality, and left the country exposed to future financial shocks.

Officials now believe the most dangerous risks—particularly from rural banks and indebted developers like Evergrande—have been largely contained.

That confidence has cleared the way for sweeping consolidation, with smaller banks being shut down, securities firms merging, and oversight increasingly centralized.

But entrenching control comes with its problems.

Rural borrowers will face fewer financing options. Foreign firms will find it harder to compete in a landscape increasingly dominated by national champions. And fintech innovators may either fill the gaps—or be co-opted, sidelined, or crushed.

There are systemic risks here, too.

While larger institutions bring discipline and scale, they also concentrate vulnerability. What was once “too small to notice” could become “too big to save.”

In other words, centralization can bring stability—or magnify the fallout when things go downhill.

There’s also the real possibility that Xi Jinping’s brand of fiscal re-centering is fueling the dysfunction it aims to cure.

Gatekeeper

Still, the momentum is building.

China’s financial consolidation is expected to accelerate in 2025, targeting state-owned brokerages, leasing firms, and trust companies.

At the same time, analysts see a sharp rise in state influence over cross-border lending and Belt and Road debt restructuring—clear signals that Beijing’s ambitions now stretch far beyond domestic stabilization.

Put simply, China isn’t just reorganizing its finance sector for internal resilience. It’s preparing for strategic competition—especially with the United States—by building fewer, stronger institutions that serve national priorities.

Xi Jinping aims to replace the country’s sprawling, debt-fueled financial system with a disciplined cadre of national champions: large, state-aligned entities designed to advance the Communist Party’s long-term vision.

Think JPMorgan—with Chinese characteristics.

Fewer players mean more control—and more ability to direct capital where Beijing wants it to go.

Consolidation gives the Party new geostrategic tools: to shield the economy from foreign sanctions, expand yuan-denominated lending, and dictate the terms of liquidity to the Global South.

That shift is already taking shape.

A recent Lowy Institute report shows China is owed $22 billion in debt service from the world’s 75 poorest countries this year—more than it is lending anew.

But the era of Belt and Road infrastructure is fading. In its place emerges what some might call “Belt and Rebalance”: less about cranes and highways and more about controlling the financial architecture that underpins the global economy.

In this new landscape, China is no longer merely a lender—it’s a gatekeeper to finance in much of the developing world. And major capitals are taking notice.

In Washington, officials worry that Chinese refinancing deals could undercut IMF-led restructuring efforts. In Brussels, EU regulators see European banks steadily losing ground in Asian markets. In Delhi, there’s rising unease over regional neighbors growing more financially tethered to Beijing.

But Beijing’s focus isn’t on interest rates—it’s on influence, a key difference.

Regulatory standards diverge, data flows are restricted, and capital controls remain intact.

But while the West talks about “de-risking,” China burrows into setting the rules of financial engagement.

And that is no accident. For Beijing, consolidating financial power at home is also about resilience abroad.

It’s a strategy to insulate China from future sanctions, preserve monetary sovereignty, and expand influence through yuan-based lending, cross-border payment systems, and state-aligned financial infrastructure.

Along those lines, China isn’t just buffering its economy against the next financial crisis. Rather, like its hardline stance in the South China Sea, it’s shaping the global financial system to control who gets access—and who doesn’t.

This Week's China News

The Big Story in China Business

VIETNAM’S CHINA PROBLEM THREATENS U.S. TRADE DEAL: Vietnamese officials are in overdrive.

With just weeks to go before Trump’s 90-day tariff pause expires in July, they’re racing to convince Washington that they can police the flow of Chinese goods through their borders.

At stake is avoiding the reinstatement of Trump’s punishing 46% tariffs—measures that could upend Vietnam’s economic model.

Unfortunately, Vietnam’s own success is its greatest vulnerability.

Over the past decade, it has emerged as a global factory floor, riding the wave of U.S.-China decoupling.

Foreign firms looking to exit China landed in Hanoi, Ho Chi Minh City, and beyond.

Chinese giants like Shein and Alibaba followed, quietly embedding themselves in Vietnam’s logistics networks and industrial parks.

The results have been staggering: Vietnam’s exports to the U.S. soared from $38.3 billion in 2017 to $123.5 billion in 2024.

But so have its imports from China—$15 billion in April alone, eclipsing its U.S.-bound exports that month.