China wants its banking industry to share the pain and help to boost a slumping economy—to the tune of 1.5 trillion yuan ($212 billion).
To combat the worst economic downturn in 40 years as the country attempts to rebound from the CCP virus crisis, the Chinese Communist Party’s (CCP) State Council has asked its banks to forgo up to 1.5 trillion yuan in profits.
It’s an unprecedented and shocking demand and serves as a sobering reminder that China, under the CCP, is still fundamentally a socialist, command economy.
There’s a lot to unpack on multiple fronts. First, Beijing is reaching beyond its traditional monetary policy toolkit to boost the economy. Second, banks will suffer financially as the central government is squeezing its profits during a period in which profits may already be slim to none, given the expected number of loan defaults.
Third and most importantly, this sends a terrible message to shareholders—many of whom are foreign investors. Shareholders have few rights in the operations of the companies they believe they own, and these for-profit companies can, without notice, become nonprofit organizations in the service of the CCP. This probably isn’t what the shareholders signed up for when they bought their bank stocks.