China plans to revamp finance, technical supervision

BEIJING – China plans to overhaul its financial regulatory system by consolidating aspects of its central bank and securities regulator under a new entity, while getting rid of 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 will approve a final version on Friday.

The changes follow similar adjustments to China’s government structure that have occurred roughly every five years in recent decades. The moves also come as Beijing has increased regulation on parts of the economy that had developed rapidly, with little oversight.

The latest plan calls for the establishment of a National Financial Regulatory Administration, replacing the China Banking and Insurance Regulatory Commission and expanding its role.

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

The China Securities Regulatory Commission’s responsibility for investor protection is set 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 will also transfer 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 room 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 government level, which will improve regulatory enforcement and reduce local government influence on financial institutions,” Yin said.

Separately, the draft proposed that the PBoC consolidate its local branches 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 Bureau.

“The Consolidated Financial Regulatory Authority of China is [a] paradigm shift to increase oversight of the vast financial system,” said Winston Ma, an adjunct professor of law at New York University.

The proposed changes also establish a new National Data Agency 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 take on 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 the ruling Communist Party of China is expected to significantly increase its direct control over 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 – which literally translates from the Chinese text as “Party State Institutional Reform Plan” – adopted last week at a regular meeting of the Chinese Communist Party’s Central Committee.

Changes in party and state institutions “strengthen the centralized and unified leadership of the Chinese Communist Party Central Committee on Scientific and Technological Work,” State Councilor and General Secretary of the State Council Xiao Jie said in a supplementary document explaining the proposed structural changes. That’s according to 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 Government’s restructuring draft released on Tuesday led to plans to overhaul the Ministry of Science and Technology, to strengthen work in areas such as research and national laboratory construction.

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

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

The new science and technology ministry’s responsibilities include resource allocation and supervision, while supervision 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 that are overseen by the State Treasury, Citi analysts pointed out.

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