China plans to set up a new national financial regulatory administration to supervise the financial sector minus the securities sector, according to a reform plan submitted to the National People’s Congress (NPC) by outgoing Premier Li Keqiang on March 5. The plan was later approved by the NPC. It is hoped the new body would increase the efficiency of supervision and defuse financial risks. It would take over the duties of the China Banking and Insurance Regulatory Commission (CBIRC) and partly those of the People’s Bank of China (PBOC).
The duties of the China Securities Regulatory Commission (CSRC) regarding investor protection should also be transferred to the new body. “The establishment of the administration would be conducive to improving modernized financial regulation, ensuring that all kinds of financial activities will be covered by financial regulation pursuant to the law,” said Lou Feipeng, Researcher at Postal Savings Bank of China. “The proposed administration will help fill the regulatory vacuum caused by blurred oversight or different regulatory standards and avoid overlap or duplication of regulation. Such efforts will ensure financial stability and guard against systemic financial risks,” Lou said.
The Government Work Report, delivered by outgoing Premier Li Keqiang to the NPC on March 5, has underlined the need to deepen reform of the financial system, improve financial regulation, and ensure that all those involved assume their full responsibilities to guard against regional and systemic financial risks. Following the reform, the PBOC will be responsible for monetary policy and macro-prudential regulation, while the new administration and the CSRC will be in charge of the supervision of financial activities. The National Development and Reform Commission’s function related to corporate bond issuance and review will be transferred to the CSRC. The CSRC, previously a public institution, will be turned into a government agency directly under the State Council.
President Xi Jinping warned of three “systemic risks” to China’s economy: the embattled real estate sector, financial regulation and local government debt. The new financial watchdog will help to streamline party oversight of all those sectors. Part of the property crisis last year was caused by property developers issuing bonds that, via local governments, were packaged into asset-backed securities that were sold to financial institutions and investors. Those investors often had no idea that they were buying bonds linked to the property market. “So the risk spreads from the real estate sector, which is not financial, into the financial sector,” said Iris Pang, Chief Economist for greater China at ING. The new, broader financial regulator will be able to “detect this kind of risk earlier than in the case of 2022”. Pang also said that a new, more integrated regulator would be better suited to handling future financial developments, such as cryptocurrencies, according to The Guardian.
The Central Committee of the Communist Party of China (CPC) will set up a central commission on science and technology to enhance the Party’s leadership in the sector, and the restructured Ministry of Science and Technology (MST) will serve as the working body of the new commission. The restructured ministry will play a bigger in mobilizing the nation to make technological break-throughs, optimizing sci-tech innovation, facilitating the application of sci-tech advances, and coordinating science and technology with economic and social development, according to the plan. The Ministry of Science and Technology’s task of bringing in talent from overseas will be reassigned to the Ministry of Human Resources and Social Security, which will also take over the functions of the State Administration of Foreign Expert Affairs.
Other institutions will also be reformed:
• The National Intellectual Property Administration – currently managed by the State Administration for Market Regulation (SAMR) – will operate directly under the State Council.
• The functions of the Ministry of Agriculture and Rural Affairs (MARA) will be optimized, and the Ministry will take over the functions of the National Rural Revitalization Administration.
• A national data bureau, to be administered by the National Development and Reform Commission (NDRC), will be responsible the development of data-related institutions and the building of a Digital China, the digital economy and the digital society.
• The number of positions at central government departments will be cut by 5% as part of the reshuffle, and the State Council will still consist of 26 departments, besides its general office, after the plan is implemented, the China Daily reports.
