- China plans to overhaul its financial regulatory system, combining parts of the central bank and securities regulator under a new entity while abolishing existing banking supervision.
- That comes from a draft released late Tuesday as part of China’s ongoing annual parliamentary session.
- The latest plan also envisages the establishment of a national data bureau and increased Chinese Communist Party oversight of scientific research.
Delegates and officials gather at the Great Hall of the People in Beijing March 5, 2023 for the opening of the annual National People’s Congress.
Lintao Zhang | News from Getty Images | Getty Images
BEIJING – China plans to overhaul its financial regulatory system, consolidating parts of the central bank and securities regulator under a new entity while abolishing existing banking supervision.
That comes from a draft released late Tuesday as part of China’s ongoing annual parliamentary meeting known as the “Two Sessions.” Delegates are scheduled to approve a final version on Friday.
The changes follow similar adjustments to China’s government structure that have occurred roughly every five years over the past few decades. The moves also come as Beijing has stepped up regulation of parts of the economy that had been developing rapidly with little oversight.
The latest plan calls for the establishment of a National Financial Regulatory Administration to replace and expand the role of the China Banking and Insurance Regulatory Commission.
The new regulator will oversee most of the financial industry, with the exception of the securities industry. According to the draft, the tasks include protecting financial customers, strengthening risk management and dealing with legal violations.
Responsibility for investor protection from the China Securities Regulatory Commission is to be shifted to the new financial regulator.
The People’s Bank of China’s responsibilities for protecting financial customers and regulating financial holding companies and other groups will also be transferred to the new administrator.
“China’s regulatory reforms will strengthen regulators’ ability to create and enforce a consistent regulatory framework and reduce the scope for regulatory arbitrage,” said David Yin, vice president, senior credit officer at Moody’s Investors Service, in a note.
“Furthermore, the reform aims to strengthen central government control over financial regulation at the local government level, which will improve regulation enforcement and reduce local government influence over financial institutions,” Yin said.
Separately, the draft proposed that the PBoC consolidate its local branches with stronger centralized control and change the designation of the Securities Regulatory Authority within the State Council from a designation similar to that of the Council’s Development Research Center to that of Customs Authority.
“China’s consolidated financial regulator is [a] paradigm shift to improve oversight of its vast financial system,” said Winston Ma, associate professor of law at New York University.
The proposed changes also establish a new national data office 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 didn’t go into great detail, but noted that the new office would take on some of the cybersecurity regulator’s responsibilities.
Ma said he expects the new regulators to develop new approval procedures for data-intensive internet companies looking to go public overseas.
The National Data Bureau is said to work under the National Development and Reform Commission, the economic planning department of the State Council – the top executive body of the Chinese government.
The proposed changes in the State Council come as the ruling Chinese Communist Party is expected to significantly expand its direct control of the government.
Party leaders already hold top positions in government. Xi Jinping, for example, is the party’s general secretary and president of the People’s Republic of China.
Xi will officially receive an unprecedented third term as president on Friday.
In the 10 years of his first two terms, Xi has pushed for uniting the country under the Chinese Communist Party and the “Xi Jinping Thought.”
Further changes to increase the party’s control of the Chinese government are set to be announced this month. The draft changes to the structure of the State Council cited a document — translated literally from the Chinese text as “Plan for Institutional Reform of the Party-state” — approved at a regular session of the Communist Party of China Central Committee last week.
Changes to party and state institutions “strengthen the centralized and unified leadership of the Communist Party of China Central Committee in science and technology work,” State Councilor and Secretary-General of the State Council Xiao Jie said in a supplemental document explaining the proposed structural changes. This emerges from a CNBC translation of the Chinese text.
The changes “establish the Central Science and Technology Commission,” whose duties will be 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 construction of national laboratories.
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China must work faster to achieve technological self-reliance “in the face of fierce international scientific and technological competition and external containment and oppression,” Xiao said.
The Biden administration has tightened restrictions on Chinese companies’ ability to obtain critical technology to use and develop high-end semiconductors.
The new Ministry of Science and Technology’s responsibilities will include resource allocation and supervision, while oversight of agricultural science and biotechnology will be shifted to other ministries, Xiao said in the supplemental document.
High-tech development and industrialization plans fall under the Ministry of Industry and Information Technology, the document said.
The proposed changes to the structure of the State Council also called for the separation of ownership and operations of state-owned institutions overseen by the central government’s Treasury Department, Citi analysts pointed out.
They said they see the move as a further leveling of the playing field between state and non-state enterprises.