by Frank Tang in SCMP, 18 Mar, 2023
Beijing’s decision this week to broadly overhaul China’s financial sector shows how the Communist Party is entrenching its control over finance and technology like never before as it vies to tackle elevated economic risks and challenges.

And the plan is expected to have far-reaching implications – from financial regulations to foreign investors.

However, details remain scarce about the new directive, unveiled by state media on Thursday, and there are many unresolved issues regarding personnel arrangements, division of work and priorities – aspects of the plan that analysts expect authorities to cast more light on at a twice-a-decade financial conference later this year.

What is known is that a Central Finance Commission will be set up under the party’s top decision-making body, the Central Commission, strengthening its control over bureaucratic policymaking.

“The restructuring strengthens the coordination of different financial regulators, and it can effectively avoid the separate regulations of different agencies, and prevent either inadequate or excess supervision,” Citic Securities chief economist Ming Ming said on Friday. “It will be able to better prevent systemic financial risks and guide the financing support for the real economy.”

The Central Finance Commission is expected to be led by President Xi Jinping, and it replaces the Financial Stability and Development Committee, a State Council organ, as the top planner for China’s financial system, overseeing the country’s 400 trillion yuan (US$58 trillion) worth of banking, insurance and securities assets.

It will also dictate how the world’s second-largest economy should open its capital market wider for foreign investors.

That would put the finance body on par with the Central Financial and Economic Affairs Commission – a key economic decision-making body headed by Xi and remaining unchanged.

More information about the new commission should come at the National Finance Work Conference, which generally convenes midyear. The previous meeting, in July 2017, set the course for China’s de-risking campaign and financial opening.

Normally the meeting occurs every five years, but it was likely pushed back from 2022 for various reasons, such as to ensure policies are set by the new leadership line-up that will be overseeing their implementation.

The finance commission’s general office, which may be overseen by Vice-Premier He Lifeng, will coordinate the policy implementation of financial regulators.

Meanwhile, a committee will be set up to oversee party affairs at all state-owned financial institutions and regulators.

Pan Xiangdong, chief economist with the Beijing-based QiLai Research Institute, said the institutional changes usher in a new era for Chinese financial regulations, and he attributed this to policymakers placing a high priority on financial security and challenges ahead.

“The resonance of domestic and overseas risk is accelerating. The impact of international financial turbulence has become more obvious,” Pan said, citing the US Federal Reserve’s rate hikes, the Russia-Ukraine war, and US-China tensions. “Financial risk remains an issue in some sectors, such as property. All demand further capability improvements to prevent systemic risk and advance financial reform.”

The long-anticipated financial overhaul came after top Chinese leadership repeatedly expressed concerns in recent months about external uncertainties and domestic risk exposure.

While pointing to the need for Beijing to tackle deep-seated domestic issues – from the growing mountain of bad assets held by small banks, to a trillion yuan worth of local hidden debt, to corruption in the state-dominated financial system – analysts also flagged leadership’s worries about global financial turbulence.

This has become particularly amplified in the wake of the sudden collapse of Silicon Valley Bank and a crisis of confidence facing Credit Suisse.

Previously, China had a similar central financial work committee from 1997-2002, when the country’s state-owned banks were deeply troubled by bad assets, and the financial system was under great pressure from the Asian financial crisis.

It remains unclear how the new finance commission will operate, but the Financial Stability and Development Committee that it is replacing held more than 50 meetings from 2018-21. It also dismantled the financial empire of tycoon Xiao Jianhua; restructured national joint-stock bank Hengfeng and many financially struggling small banks; and shut down thousands of peer-to-peer lending platforms.

Thursday’s announcement marked the last leg of the current round of institutional reform – previously the State Council announced a reshuffling of the financial regulatory regime, a revamp of the science and technology ministry, and the establishment of a new data administration.

Beijing this month kept major financial cadres in their regulatory posts during the “two sessions” parliamentary meetings, including central bank governor Yi Gang and finance minister Liu Kun.

Meanwhile, the cabinet’s National Financial Regulatory Administration will absorb the China Banking and Insurance Commission, as well as some functions from the securities regulator and the central bank.

The restructuring of central authorities at both party and government levels will be completed this year, and local-level adjustments will be completed by the end of 2024, according to the plan.

There are already initial signs of policy changes. New yuan loans reached a fresh high in January and February, bolstering Beijing’s push for China’s economy to grow by “around 5 per cent” this year.
In a recent financial stability meeting, the central bank said it would reduce the number of high-risk financial institutions and make progress in enacting a financial stability law.

Meanwhile, China’s anti-corruption drive continues to net financial cadres. On Thursday, the Central Commission of Discipline Inspection announced its probe into Wang Weijun, a former branch head at China Development Bank, the country’s policy bank specialising in development finance.
https://www.scmp.com/economy/china-economy/article/3213938/chinas-financial-overhaul-brings-more-power-party-us58-trillion-assets-stake