China restores ruling party’s control over financial oversight

People pose with the Chinese Communist Party flag during a visit to the Chinese Communist Party Museum in Beijing on March 3, 2023, ahead of the opening of the annual session of the National People’s Congress on March 5.

Greg Baker | AFP | Getty Images

BEIJING — China’s ruling Communist Party is setting up commissions to oversee finance and technology, state media said Thursday.

The changes come as Chinese President Xi Jinping sees unity under the party as essential for building the country. This contrasts with the trend of Chinese leaders in recent decades to delegate more power to the government and its ministries.

A new “Central Financial Commission” is set to strengthen the party’s “centralized and unified leadership on financial work,” state media in Chinese said Thursday, according to a CNBC translation. The commission is responsible for high-level financial stability and development planning, the report said.

The Chinese government’s annual legislative meeting this month stressed that managing financial risks is a priority for policymakers this year.

The report said the administrative office of the new commission will take over the responsibilities of the State Council’s Financial Stability and Development Committee — a group once overseen by Liu He, essentially retired, and now disbanded.

Along with this administrative office, a “Central Financial Work Commission” will be established to focus on ideological and party-related work in the financial industry, state media said.

While state media did not specify, a financial working commission of the same name was set up in the aftermath of the 1998 Asian financial crisis. The commission was disbanded after about five years, resulting in led to the creation of China’s former banking regulator in 2003.

It’s unclear how the commission’s future work will compare to history.

In the late 1990s and early 2000s, the Central Financial Works Commission helped streamline financial regulation and supervision – minimizing the influence of powerful interest groups on regulators, Sebastian Heilmann said, professor of political economy of China at the University of Trier. in a paper. He then became founding president of the Mercator Institute for Chinese Studies.

“But the Party’s hierarchical institutions of control were unable to introduce market-based incentive structures for financial leaders and failed to eradicate financial mismanagement and corruption,” Heilmann wrote in 2004.” Moreover, they have caused friction with emerging new forms of corporate governance and increasing foreign investor activity.”

Restructuring of the Technical and State Council

Thursday’s announcement included previously released details of plans to restructure the State Council – the main executive body of the Chinese government – with the creation of the Central Commission for Science and Technology.

The responsibilities of this party commission are assumed by the restructured Ministry of Science and Technology.

Amendments to the State Council established a National Financial Regulatory Administration to oversee most of the financial sector, with the exception of the securities sector. The plan also changed the designation of the China Securities Regulatory Commission within the State Council, from a designation similar to the Council’s Development Research Center to that of a customs agency.

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Beijing has yet to announce who will lead the party’s financial administration or new commissions.

The changes announced Thursday are expected to come into effect nationwide by the end of this year.

Other new commissions include groups overseeing the party’s work in industrial associations and Hong Kong and Macau affairs, state media said. Beijing has tightened its control over regions which, under the “one country, two systems” structure, enjoy freedoms that do not exist on the mainland.

Xi – China’s president and party general secretary – has consolidated his power and overseen an increased party presence in the economy, including among non-state-owned enterprises.

The new commissions are part of the party’s central committee, which has about 200 members. From these members come the main leaders – the Politburo and its standing committee.

Membership changes are made every five years at party conventions, the most recent of which was in October. At that congress, Xi paved the way for his unprecedented third term as president and filled the party leadership with loyalists.

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