Daily Management Review

China Will Establish A New Financial Regulator As Part Of Sweeping Reforms


China Will Establish A New Financial Regulator As Part Of Sweeping Reforms
China will establish a new financial regulatory body to consolidate oversight, according to analysts, in order to close gaps with multiple agencies monitoring different aspects of its trillion-dollar financial services industry.
According to a plan submitted to parliament on Tuesday, the government will also establish a bureau responsible for coordinating the sharing and development of data resources.
The new financial regulator will replace the China Banking and Insurance Regulatory Commission (CBIRC) and consolidate industry supervision, with the exception of the securities sector, into a body reporting directly to the State Council, or cabinet.
The proposal to establish the new regulator, the National Financial Regulatory Administration, was presented to China's parliament on Tuesday during its annual meeting.
China's financial sector is governed by the People's Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC), and the China Securities Regulatory Commission (CSRC), with overall control resting with the cabinet's Financial Stability and Development Committee.
According to the revised plan, the central bank PBOC and securities regulator CSRC would transfer some of their duties, as well as those of the CBIRC, to the new administration.
Beijing has established a new financial regulatory body in an effort to control major corporations and financial institutions that could pose systemic risks by engaging in regulatory arbitrage between various authorities.
After years of lax regulatory practices, a number of private Chinese companies, including fintech giant Ant Group, have recently come under the scrutiny of numerous watchdogs.
Regulation gaps under "multiple regulators," according to Citigroup, may be closed with the creation of the new body. It recommended reducing financial regulation overlap, particularly at the local level.
The regulatory reorganization also follows President Xi Jinping's last week reiteration of his call for comprehensive reforms of the Communist Party and state institutions. President Xi Jinping secured a record-breaking third leadership term in October.
In what is anticipated to be the largest government reshuffle in a decade, the National People's Congress (NPC), which closes on Monday, is also scheduled to confirm a number of new leaders, including Li Qiang, who is expected to be the next premier.
The number of employees at central-level state institutions will be reduced by 5% as part of the broader government restructuring announced on Tuesday.
"You could certainly argue for better coordination between regulators but a whole new super regulatory administration may not be the solution," said Fraser Howie, author of several books on China's financial system.
"But centralisation of power appeals to many in China."
On Friday, the legislature will vote on the institutional reform plan.
The new administration will "strengthen institutional supervision, behavior supervision, and function supervision," according to the plan. The proposed plan calls for "penetrating" and "continuous" supervision.
According to Li Nan, professor of finance at Shanghai Jiaotong University, the CBIRC currently combines the equivalent functions of the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp (FDIC) in the United States, with some regulatory role held by the central bank.
"Now all of those regulatory functions are with the new bureau, which is basically CBIRC with some regulatory role taken back from PBOC and CSRC, which makes perfect sense," she said.
"And the PBOC will become more focused on monetary policy afterwards, which resembles what the Fed does," she said.
The plan calls for the PBOC's nine regional branches to be replaced by 36 branches across the country, reversing a 1998 reform that mirrored the US Federal Reserve system.
Separately, sources say China may resurrect the Central Financial Work Commission (CFWC), a high-level financial sector oversight body directly under Communist Party leadership, with a decision expected after the parliamentary session.
The proposed data bureau will be run by the powerful National Development and Reform Commission (NDRC) and will take over some of the functions of the Office of the Central Cyberspace Affairs Commission, which oversees China's internet.
The new bureau's responsibilities will include the exchange of information resources across industries as well as the promotion of smart cities.
Concerned that unchecked collection by private firms could allow rival state actors to weaponize information on infrastructure and other national interests, China has strengthened oversight over data in recent years, and the belief that data has become a strategic economic resource.
Beijing will also restructure its science and technology ministry to focus resources on making breakthroughs, despite US efforts to prevent Chinese access to critical technology. It will also establish a Central Commission on Science and Technology, strengthening the Communist Party's grip on the field.