China unveils government reform plan

The State Council of China (government) presented at the session of the National People’s Congress (NPC, parliament) that opened on March 5 a plan to reform its apparatus. Contrary to rumors about a possible transformation of the law enforcement agencies, the points of the plan published by the Xinhua News Agency indicate a different direction for reforms. The novelty will be that in China there will be a new supervisory financial agency, not including the supervision of the securities market, which remains under the jurisdiction of the relevant commission. The new National Financial Regulatory Administration will report directly to the State Council, replace the Banking and Insurance Regulatory Commission, and take over some of the functions of the People’s Bank of China (PBOC, China’s central bank).

Thus, the NBK will no longer supervise financial holdings and protect the rights of consumers of financial services. According to Reuters, citing analysts, after the reform, the NBK will focus more on monetary policy.

The purpose of the new body will be to oversee all types of financial activity and resolve long-standing problems in the financial sector. According to the plan, the agency will “strengthen institutional oversight, oversight of the behavior of market participants and oversight of functions”, while the control will be “end-to-end” and “continuous”. The structure of the department is planned to be discussed at the NPC session on March 10.

At the same time, the Securities Regulatory Commission of the People’s Republic of China will be elevated in the government hierarchy and will report directly to the State Council.

China will also set up an Information Resource Bureau under the National Development and Reform Committee of the State Council. The new department will receive part of the powers of the Central Commission for Cyberspace Affairs, which oversees the Internet. The functions of the new body will include facilitating the development of intersectoral information resources and the development of smart cities.

In addition, the new body will implement the national big data strategy and promote the construction of digital infrastructure. According to Bloomberg, the body being created will help Beijing tighten control over valuable information collected by various sectors of the economy. In addition, the PRC plans to restructure the Ministry of Science and Technology in order to achieve a more rational distribution of resources. In theory, this should solve the key problems of the industry and help achieve faster scientific and technological sovereignty against the backdrop of restrictions imposed by the United States. The mentioned ministry will no longer be responsible for creating high-tech industrial zones and ensuring technological progress in rural areas. A new Central Commission for Science and Technology will also be established, allowing the Chinese Communist Party (CCP) to increase its control over the industry.

In addition to these reforms, the National Health Commission will transfer a number of functions related to the development of policies to combat population aging to the Ministry of Civil Administration. Also, the central office of government departments will be reduced by 5%.

The Chinese created a mega-regulator in 2018, then combining the functions of the NBK, supervision of insurance activities and the securities market, says Sergey Lukonin, an expert at IMEMO RAS. Now the process is partially reversed. The authorities need to stimulate the economy, while not greatly inflating the level of debt burden. Against this background, local authorities are implementing many infrastructure projects, and the new financial supervisory agency will be called upon to prevent financial bubbles and various frauds, says Lukonin.

It can be assumed that the PRC Securities Regulatory Commission will raise the status, as Beijing wants to strengthen the role of the securities market as a source of capital for new companies. According to Lukonin, now exchanges in China do not function as they do in the West. If the PRC achieves this, it will thereby reduce the overall level of public debt and, instead of lending to state-owned banks, companies will be able to independently seek additional financing on the stock exchanges.

In 2021, China passed a personal data protection law when the CCP allowed only government entities to process and, in fact, trade personal data, including those collected by various services. The creation of the Bureau of Information Resources, according to Lukonin, may be associated with the implementation of those ideas. Reforms in the Ministry of Science and Technology may be associated with US pressure on China’s technology sector, including in the semiconductor industry. This reform will allow the Chinese authorities to strengthen control and accelerate the achievement of goals in this area, the expert concludes.