China revives ruling party control of financial oversight

BEIJING – China’s ruling Communist Party is setting up commissions to oversee finance and technology, state media announced Thursday.

The changes come as Chinese President Xi Jinping sees party unity as crucial to building the country. That contrasts with a trend by Chinese leaders in recent decades to delegate more power to the government and its ministries.

A new “Central Financial Commission” is to strengthen the party’s “centralized and unified management of financial work,” state media said Thursday in Chinese, according to a CNBC translation. The commission is responsible for high-level planning in financial stability and development, the report said.

The Chinese government’s annual legislative meeting this month underlined that managing financial risks is a priority for policymakers this year.

The report said the new commission’s administrative office will assume responsibility for the State Council’s Finance Committee for Financial Stability and Development — a group once overseen by the essentially retired Liu He and now disbanded.

Alongside the administrative office, a “Central Financial Work Commission” will be established to focus on ideological and party-related work in the financial industry, state media said.

While state media did not specify, a Financial Labor Commission of the same name had been established in the wake of the Asian financial crisis in 1998. The commission was disbanded after about five years, leading to the establishment of the now-defunct China Banking Regulatory Commission in 2003.

It is unclear how the commission’s future work will compare to history.

Back in the late 1990s and early 2000s, the Central Financial Work Commission helped streamline financial regulation and supervision — by minimizing the influence of powerful interest groups on regulators, said Sebastian Heilmann, professor of political economy in China at the University of Trier, in a paper. He later became the founding president of the Mercator Institute for China Studies.

“However, the hierarchical institutions of party control were unable to introduce market-based incentive structures for financial managers and failed to suppress economic mismanagement and corruption,” Heilmann wrote in 2004. “Furthermore, they caused friction with the new forms of corporate governance and corporate governance. foreign increasing activity of investors.”

Thursday’s announcement included previously published details of plans to restructure the State Council – the top executive body of the Chinese government – with the establishment of the Central Science and Technology Commission.

The responsibility for this party commission is borne by the restructured Ministry of Science and Technology.

The changes in the State Council established a National Financial Regulatory Administration to oversee most of the financial industry—except the securities industry. The plan also changed the designation of the China Securities Regulatory Commission in the State Council from one similar to the Council’s Development Research Center to that of the Customs Agency.

Beijing has not yet announced who will head the finance administration or the new party commissions.

The changes announced on Thursday will take effect nationally by the end of this year.

Other new commissions include groups to oversee the party’s work in trade unions and affairs in Hong Kong and Macao, state media said. Beijing has tightened its control over the regions, which – under the “one country, two systems” structure – enjoy freedoms that do not exist on the mainland.

Xi — China’s president and general secretary of the party — has consolidated his power and overseen increased party presence in the economy, including among non-state-owned enterprises.

The new commissions are part of the party’s central committee, which has around 200 members. From these members comes the core leadership – the Politburo and its Standing Committee.

Membership changes are made every five years at party congresses, the most recent of which was held in October. At that congress, Xi paved the way for his unprecedented third term as president and filled the party leadership with loyalists.