China’s President Xi Jinping is gearing up to strengthen financial stability at home as he tries to keep up with fierce competition from the United States over technology, amid sweeping changes to financial and technology regulations.
The changes unveiled at the Rubber Stamp Congress’ annual meeting this week are a major overhaul of the State Council, China’s Cabinet, and government ministries.
Analysts say the underlying move is that Xi and the party leadership want tighter control over the state levers as China’s president embarks on an unprecedented third five-year term. This is my wish.
What changes are being made to financial sector supervision?
One of the most significant changes is the replacement of China’s banking supervisory body, the China Banking and Insurance Regulatory Commission, with a new body to supervise the financial sector.
The securities market will still be handled by the market regulator, the China Securities Regulatory Commission, but everything else will fall under the jurisdiction of the new State Financial Regulatory Authority.
The agency will also take over some of the supervisory functions of the central bank, the People’s Bank of China, including overseeing state-owned conglomerates such as Citic Group and fintech companies such as Alibaba’s Ant Group. increase. We also undertake consumer protection work from the CSRC.
The CSRC’s mandate will be expanded to include the review of corporate bond issuances, giving it a greater say in the market for bonds issued by local governments.
Analysts say the change is a step toward a more international “twin peak” model of financial regulation, with one agency responsible for market conduct and consumer protection and another responsible for financial system stability. and policy, analysts said.
Why now and what will be the economic impact of the change?
Financial regulation was once governed by a single department of the PBoC, but as the economy grew, so did the regulatory system.
Numerous institutions at national and local levels are often ill-equipped to handle the new types of business and new risks from consumer payment apps or peer-to-peer lending.
JD.com chief economist Shen Jianguan said, “The main objective is to unify the regulatory framework, as many non-bank financial industries have developed very rapidly in the past.
A strengthened central regulatory body could also play a greater role in overseeing local financial activity.
“There has been a lack of supervision so far,” said Zheng Zhigang, a professor at Renmin University of China. Its establishment will clarify the responsibilities of the financial supervisory system.”
This frees the central bank to focus on monetary policy making and macroprudential supervision.
UBS economist Zhang Ning suggests that as part of the change, “the government is trying to distinguish between so-called macroprudential regulation and microregulation.” “The government’s focus is on improving efficiency and mitigating significant financial risks.”
But Fraser Howie, an independent expert on China’s financial sector, said that at a time when President Xi Jinping plans to reorganize the government’s entire economic team, rather than make major changes. , said the existing CBIRC mandate could have been expanded. “It’s like a solution to a problem that they don’t have,” Howie said, adding, “It’s going to change everyone’s structure at the same time.”
Why is China reviewing technology regulations and how is it restructuring Chinese research?
Tech companies have been hit hard by Washington’s imposition of export controls that bar American companies from selling advanced chip-making equipment to Chinese groups.
In this context, Beijing has indicted the new Communist Party Science Commission and charged it with catching up with the West in innovation and science, in response to Xi. It works in conjunction with the reactivated Ministry of Science and Technology.
State Council official Xiao Jie said in introducing reforms on Tuesday:
The restructuring will centralize party control over the country’s technological development efforts and create a “new type of national system” to achieve breakthroughs, he said. aims to build national laboratories, supervise projects, facilitate technology transfer and train technical workers.
“China is concerned about the future of the technology under the increased blockade of chips by the United States and its allies,” said Graham Webster, a China expert at the Stanford Cyber Policy Center.
“For years we have been bureaucratically emphasizing the online world, which is built on chips. is being done.”
China will also create a national data management to leverage the country’s vast information, create a national big data plan, and lead the economy and national digitalization.
The department will be housed within the National Planning Agency and will be responsible for several functions related to the utilization of data from China’s powerful internet regulator.
Will there be further reforms?
More changes are likely as Congress continues into next week.
Analysts are eyeing parallel announcements of communist party organizations that will oversee the financial sector and other areas.
Analysts say this will give Xi more direct control over government institutions. Party leaders said last week that the institutional reforms were “part of a broader effort to strengthen the party’s leadership in the country’s socialist modernization.”
Also important are the people in charge of various institutions, and the National People’s Congress will hold a vote on the appointments this weekend.
Top contenders to lead the new financial regulator include Yi Huiman, the esteemed current head of the CSRC, according to people familiar with the matter.
Additional reporting by Xinning Liu in Beijing