China plans to revamp finance, technical supervision

BEIJING – China plans to overhaul its financial regulatory system by consolidating aspects of the central bank and the securities regulator under a new entity while scrapping the existing banking regulator.

That’s according to a draft released late Tuesday as part of China’s ongoing annual parliamentary meeting, known as “the two sessions.” Delegates must approve a final version on Friday.

The changes follow similar adjustments to China’s government structure that have occurred about every five years over the past few decades. The moves also come as Beijing has increased regulation of parts of the economy that had been growing rapidly, with little oversight.

The latest plan calls for the establishment of a National Financial Regulatory Administration to replace the China Banking and Insurance Regulatory Commission and expand its role.

The new regulator will oversee most of the financial industry – except the securities industry. Responsibilities include protecting financial consumers, strengthening risk management and dealing with offences, the draft said.

The China Securities Regulatory Commission’s investor protection responsibilities are poised to move to the new financial regulator.

The People’s Bank of China’s responsibilities for protecting financial consumers and regulating financial holding companies and other groups are also set to move to the new administrator.

“China’s regulatory reforms will strengthen regulators’ ability to establish and enforce a unified regulatory framework as well as reduce the space for regulatory arbitrage,” David Yin, vice president, senior credit officer at Moody’s Investors Service, said in a note.

“In addition, the reform aims to strengthen the central government’s control of financial regulation at the local level, which will improve law enforcement and reduce the influence of local governments on financial institutions,” Yin said.

Separately, the draft proposed that the PBoC consolidate its local departments with greater central control and change the securities regulator’s designation in the State Council from one similar to the council’s development research center to that of the customs authorities.

“China’s consolidated financial regulatory body is (a) paradigm shift to increase oversight of its vast financial system,” said Winston Ma, adjunct professor of law at New York University.

The proposed changes also establish a new National Data Bureau to coordinate the establishment of a data system for the country and promote the development of the so-called digital economy, which includes Internet-based services.

The proposal did not go into detail, but noted that the new agency would assume some of the cybersecurity regulator’s responsibilities.

Ma said he expects the new regulatory agencies to develop new approval processes for data-intensive Internet companies that want to go public overseas.

The National Data Bureau is set to operate under the National Development and Reform Commission, which is the economic planning department of the State Council – the top executive body of the Chinese government.

The proposed changes to the State Council come as China’s ruling Communist Party is expected to significantly increase its direct control of the government.

Party leaders already fill top government roles. For example, Xi Jinping is the General Secretary of the Party and President of the People’s Republic of China.

Xi will formally be given an unprecedented third term as president on Friday.

During the 10 years of his first two terms, Xi has pushed to unify the country under the Chinese Communist Party and the “Xi Jinping Thought.”

Further changes to increase the party’s control over China’s government are expected to be unveiled this month. The draft changes to the structure of the State Council cited a document – literally translated from the Chinese text as “Party State Institutional Reform Plan” – adopted last week at a general meeting of the Chinese Communist Party’s Central Committee.

Changes to the party and state institutions “strengthen the centralized and unified leadership of the CPC Central Committee for Scientific and Technological Work,” said State Councilor and Secretary General of the State Council Xiao Jie in a supplementary document explaining the proposed structural changes. This appears from a CNBC translation of the Chinese text.

The changes “establish the Central Science and Technology Commission,” whose responsibilities are borne by the restructured Ministry of Science and Technology, Xiao said.

The State Council’s restructuring draft, released on Tuesday, led to plans to overhaul the Ministry of Science and Technology to strengthen its work in areas such as research and national laboratory construction.

China must work faster to achieve self-reliance in technology “in the face of fierce international scientific and technological competition and external containment and repression,” Xiao said.

The Biden administration has increased restrictions on the ability of Chinese companies to obtain critical technology for the use and development of advanced semiconductors.

The new Ministry of Science and Technology’s responsibilities include resource allocation and monitoring, while oversight of agricultural science and biotechnology will be moved to other ministries, Xiao said in the supplementary document.

High-tech development and industrialization plans fall under the Ministry of Industry and Information Technology, the document states.

The proposed changes to the structure of the State Council also called for separating the ownership and operation of state-owned institutions overseen by the central government’s financial management, Citi analysts pointed out.

They said they see this as further leveling the playing field between state-owned and non-state-owned enterprises.