Political power supplants financial regulation as globalization recedes

Over the past month, significant developments have emerged in the realm of global financial regulation. Notably, China has revived its Central Financial Work Commission, which it dissolved in 2003. The commission will report directly to the Central Committee of the Communist Party of China. Meanwhile, governmental intervention in financial markets in the West has been pronounced: The latest example is the United States government’s recent move to extend full coverage to deposits held by Silicon Valley Bank. Although the Swiss government’s imposition of UBS’ acquisition of Credit Suisse may seem distinct from these trends on the surface, closer examination of the underlying driving forces reveals a connection to the recent retreat from globalization.

The mainstream media tends to give technical explanations for financial regulatory events with factors such as the US Federal Reserve’s interest rate hikes and China’s local financial market risks. However, it is essential to consider the potential underlying rationale behind these events, which may involve a desire by governments of different countries to promote absolute control over local financial power. Such control could provide greater leverage in international economic and political negotiations, allowing countries to exert or remain immune to influences.

Western countries have criticized China’s transfer of financial regulatory functions from the State Council to the Central Committee of the CPC following the two sessions in March, citing the “concern” that this move is a “political maneuver” aimed at limiting the growth of commercial capital and consolidating the authority of the Party. However, it is important to note that financial regulation in the West exhibits a similar trend toward political prioritization, which is no less apparent than in China. The willingness of governments to directly intervene in financial markets, brutally at times, demonstrates a departure from the regulatory concepts that once advocated market regulation in the era of globalization. As a result, the relationship between political regulation and financial markets has become increasingly unstable.

Regardless of whether it’s China, Europe or the US, political power has made no secret of its jurisdiction over financial markets. This is despite the difference in the political systems of the East and West. The consistent attitudes toward the financial markets presented in this ecosystem are undeniably a confusing puzzle.

To unravel the mystery behind the increasing trend of political power exerting supreme jurisdiction over financial markets, we must look beyond surface-level factors such as financial technology or the struggle between “democracy” and “autocracy”. Instead, we should examine the underlying conflicts between globalization and local politics. The ebb tide of globalization began with Donald Trump’s America First campaign after he was elected president. Since then, the war in Ukraine and the decoupling of China and the US have intensified the speed of deglobalization. Switzerland’s recent actions in smashing its credibility and global financial center identity accumulated over hundreds of years cannot be dismissed as a mere “show operation” by an amateur finance minister who does not understand finance. In just six days, Switzerland reestablished and then rejected its status as a “permanent neutral country”, revealing the helplessness of this small European nation in the face of global economic forces. For decades, Switzerland benefited from funds flowing in from all over the world during the tide of globalization, which is now receding. During the decoupling process, such funds will inevitably flow out and it is no longer a matter of whether Switzerland is “neutral” or not. The country’s decision to discard its “neutral country” identity is not even a cause, but rather the consequence of the changing global financial landscape. 

An essential aspect of globalization is the global flow of finance, which means that financial power increasingly extends beyond national boundaries, leading to inevitable conflicts with traditional local political power. The outcome of a government’s decision to take over the financial power of the country and whether such political power can effectively restrict the financial power bred by globalization, remain to be seen.

The author, a chartered financial analyst, is a member of China Retold, and Beta Gamma Sigma, an international business honor society.

The views do not necessarily reflect those of China Daily.