Clash of the State-Owned Titans

In a rare incidence of one Chinese state behemoth directly attacking another, China Central Television (CCTV), with access to over one billion viewers, ran a report on July 9 accusing the Bank of China (BOC), the nation’s largest foreign exchange lender, of money laundering. China maintains strict controls on capital flows, implementing a $50,000 cap on how much of the Chinese currency renminbi a single individual can convert to foreign currency each year. According to the report however, BOC operates a service called "Youhuitong," or "Superior Exchange." Not advertised on the BOC website, the program allegedly allows bank patrons to transfer large sums of money out of the country, for a substantial fee. (BOC issued a statement the same day refuting the allegations and calling Youhuitong "completely legal.")  

CCTV running a take-down on a major brand is not unusual. Roughly every six months it lambastes foreign or domestic companies for high prices, poor customer service, low quality, or potential security threats. CCTV targeted Apple in March 2013, Starbucks in October 2013, and most recently China’s e-commerce giant Alibaba in March 2014. But to go after BOC — one of China’s big four state-owned banks and a government heavyweight in its own right — is an extremely curious move. 

Due to the mud-like opacity of China’s one-party political system, it’s near impossible to know what big power struggles may be playing out behind the scenes. But here are three possible scenarios underlying this unusual turn of events:

1) Another bold move in the deepening anti-corruption crackdown. Chinese President Xi Jinping’s ongoing "tigers and flies" campaign has cast a wide net to root out corruption among government officials. One embarrassing thorn in Beijing’s side has long been "naked officials" — government officials who send their assets and family members abroad, sometimes as a precursor to themselves fleeing the country. On July 2, the latest campaign netted 1,000 of these officials in the wealthy southern province of Guangdong, reportedly the only province where BOC operates Youhuitong. Stronger enforcement of China’s capital flows restrictions — highlighted in CCTV’s broadcast — would likely hinder the attempts of would-be naked officials to send assets abroad.

2) A further consolidation of Xi’s power in the banking and financial sectors. At the Third Plenum, a landmark Communist Party meeting in November 2013, the party set out an ambitious slate of economic reforms geared at helping China transition from an export-oriented to a services-oriented economy. But big banks in China have significant political clout. They may oppose reforms such as interest rate liberalization, which might force them to increasingly compete for customers. Exerting pressure on China’s banking sector may provide Xi with greater traction as he prepares to push forward with economic reform.

3) The right hand doesn’t know what the left hand is doing. The most obvious explanation is that this simply represents a state-owned media organization outing the allegedly shadowy dealings of a state-owned bank. Perhaps no top officials manipulated CCTV, and instead the network decided to conduct excellent investigative journalism.

Or perhaps CCTV attempted that, and made mistakes with their reporting. According to a report in the newspaper Time Weekly, the Guangdong branch of the People’s Bank of China, China’s central bank, chose BOC to launch a program allowing individuals to transfer funds internationally. In its statement issued in response to CCTV’s allegations, BOC stated that it began operations of Youhuitong only after "reporting to the relevant regulatory authorities." If these reports are accurate, then CCTV was either not privy to that information or chose to omit it from the report.

The broadcast only happened July 9, and more information will likely come out in the coming weeks. But don’t expect to see anything else like this anytime soon.