China to Merge Banking, Insurance Regulators in Big Government Shake-Up
China is merging its banking and insurance regulators, granting new powers to the regulatory bodies, such as the central bank, and creating new ministries in the largest government reorganization in years.
Modernization is one of the cornerstones of President Xi Jinping’s agenda to place the leadership of the Communist Party at the center of politics with Xi himself at the center of the party.
The economy and the party have become increasingly intertwined since a party congress in October, when Xi consolidated his control of power, with the control of the party deemed necessary to help drive the reforms. On Sunday, the limits of the presidential mandate were removed from the state constitution.
“Deepening the reform of the party and state institutions is an unavoidable requirement to strengthen the party’s long-term government,” wrote Liu He, Xi’s chief economic adviser and confidant, in a commentary in the official People’s Daily.
“Strengthening the general leadership of the party is the central issue,” he said.
The comment suggested that the party will have greater influence and influence in the government, or in the State Council, headed by Prime Minister Li Keqiang, some analysts say.
The long-awaited measure to tighten supervision of China’s 42 trillion-dollar banking and insurance sectors comes as the authorities seek more leverage to crack down on riskier lending practices and reduce high levels of corporate debt. .
“The most important news is still about the merger of the financial regulators, the central bank will be in charge of the macro-supervision side, while the merged regulators will be responsible for the most concrete part of things,” Zhou Hao said. , senior economist of emerging markets of Commerzbank.
China will also form a management office to oversee national markets, according to a parliamentary document released on Tuesday.
The office will assume the function of price supervision and compliance with antitrust law by the state economic planner, the National Development and Reform Commission (NDRC), the Ministry of Commerce and the State Council.
The heads of the new merged regulator, ministries and departments will be announced before the close of the annual session of the parliament on March 20.
It is expected that many of Xi’s allies will get the most important appointments, including the president of the National People’s Congress, or the parliament, and the National Supervisory Commission.
Powers of the PBOC
China is among the world’s economies most vulnerable to a banking crisis, the Bank for International Settlements (BIS) said over the weekend, although Beijing maintained that debt risks are under control.
Speculation that Beijing was considering the creation of a super-financial regulator had been commonplace since the Chinese stock market crash of 2015, attributed in part to poor interinstitutional coordination.
The merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) aims to resolve existing problems such as unclear responsibilities and cross-regulation, according to the parliamentary document.
CBRC, currently led by Guo Shuqing, was carved into the central bank in 2003, while CIRC was created in 1998.
The new merged entity will report directly to the State Council.
The function of making important laws and regulations of CBRC and CIRC will be transferred to the People’s Bank of China (PBOC) as the central bank assumes a more important role.
China’s financial system has become increasingly difficult to regulate as it grows rapidly in size and complexity, emerging as one of the largest in the world with financial assets at nearly 470 percent of gross domestic product, according to the International Monetary Fund.
Registered companies such as banks or insurers have begun to venture into other areas of finance, many of which offer complex hybrid products and make non-traditional investments.
Many brokers also structure asset management products as a channel for hidden bank loans, in addition to the more traditional business of facilitating exchanges of shares and investment banking services.
The securities regulator – the China Securities Regulatory Commission (CSRC) – will remain a separate entity.
“There is a valid argument for separating the regulation of stock markets from that of the banking system, you do not want your monetary authority to be obsessed with supporting the stock markets, because that can lead to bad macroeconomic policy,” said Andrew. Polk, partner co-founder of the research firm Trivium / China.
The government will create seven new ministries: natural resources; ecological environment; emergency management; agriculture and rural affairs; culture and tourism; Veterans affairs; and the National Health Commission.
Within the departments that are being restructured, some officials are concerned about the loss of some functions, while others appreciate the opportunity to obtain new powers, said people familiar with the situation.
“Everyone seems to consider these departments as their own interests, giving up a piece of yourself is very heartbreaking, but it’s a pleasure to take a piece from someone else,” said a ministry official, declining to be named because of sensitivity. of the subject “The reforms are difficult”.
The National Council for Social Security Fund led by former Finance Minister Lou Jiwei will be administered by the Ministry of Finance, instead of the State Council.
The Ministry of Agriculture, which will undergo its first major change in its role and supervision since 2013, will undergo a new ministry that will also be in charge of rural development.
“In the midst of the remodeling, the NDRC seems to have many of its powers wiped out, which is potentially a nod to the Party’s fighting power away from the government,” said Jonas Short, an analyst at Everbright Sun Hung Kai.
In addition to losing its antitrust investigation and its punishment powers, the NDRC will also lose its rural planning authority and oversight of China’s carbon emissions.
The proposed changes were discussed in parliament on Tuesday and are expected to be formally approved on Saturday.