China’s new financial centralization

CHINA ADVISORY - Report 14 Mar 2023 by Andrew Collier

China has made the most significant changes to its economic governing in several decades. It has placed power for the regulation and oversight of the financial system in the hands of a governing group in the Party. This could impact the country’s growth and financial stability.

Specifically:

* The banking and insurance watchdog will be absorbed into a new bureau—a Central Financial Work Commission—to oversee all financial sectors except the securities industry. The People’s Bank of China will no longer have oversight of financial holding companies and financial consumer protection. Xi Jinping’s chief of staff Ding Xuexiang, who has little economic experience, will become the commission head.
* The vice premier, He Lifeng, will simultaneously be in charge of the economy in the government and is set to be named the Party Secretary of the People’s Bank of China. This is the first time one official has held both roles since Premier Zhu Rongji in the 1990s under Deng Xiaoping.
* The China Banking and Insurance Regulatory Commission, which was only formed 20 years ago, is being closed. It had been created to separate the regulatory and monetary policy responsibilities of the PBOC.
* The PBOC will eliminate its lower level regional branches in favor of 31 provincial level branches “directly under the central government".
* The China Securities Regulatory Commission (CSRC) is being stripped of some regulatory responsibilities, which are being handed to the National Development and Reform Commission (NDRC), or planning board.
* On the positive side, Liu Kun was retained as Minister of Finance and Yi Gang as Governor of the People’s Bank of China, providing some stability to financial policy.

One of the central changes is the appointment of He Lifeng in charge of two key functions: setting the general direction of economic policy along with the top managerial role within the central bank.

According to Bloomberg, the regulatory changes are aimed at “solving the long-standing conflicts and issues in the financial area.” The new authority will increase oversight of financial institutions and reduce violations, according to the State Council.

In this report, I discuss what is behind this centralization of economic policy and what we should expect in the future.

Now read on...

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