ExplainerWhy is China’s national financial work conference important? Key decisions since 1997 and what to expect this year

China is preparing for its sixth national financial work conference, a significant event that takes place every five years. This conference is a platform for financial regulators to evaluate the current crisis in the property sector, small banks, and the status of local government financing. The decisions made during this conference could influence how Beijing addresses property and local government debt issues, as well as potential threats to the country's financial stability. The first conference in 1997 was a direct response to the Asian financial crisis, and since then, these conferences have been instrumental in shaping China's financial direction.

In 1997, the capital adequacy ratio of China's four major state-owned banks was only 3. 5 per cent, significantly below the international standard of 8 per cent. This led some Western economists to label these banks as technically bankrupt due to their bad loans. The conference resulted in the establishment of the Central Financial Work Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission to oversee the financial system. Additionally, four asset management companies were created to absorb non-performing assets from banks. The second conference in 2002 proposed the concept of transforming banks into modern financial enterprises. The China Banking Regulatory Commission was established to address banks' increasing debt loads, undercapitalisation, and non-transparent business practices.

The third conference in 2007 emphasised the reform of the financial system in rural areas and foreign exchange reserve management. The Ministry of Finance issued special government bonds to establish the China Investment Corporation for international investment operations. The 2012 conference stressed that finance should serve the real economy and that preventing financial risks is crucial. It was the first time that resolving local government debt risks was discussed. The 2017 conference set the course for China's de-risking campaign and financial opening. The Financial Stability and Development Committee was established after the meeting, serving as China's highest decision-making body on national financial affairs. The conference scheduled for 2023 was postponed from 2022 for various reasons, but significant changes are anticipated following the establishment of the Central Finance Commission in March.