finance industry

China to set up new financial regulator in sweeping reform

China to set up new financial regulator in sweeping reform

FINANCIAL DISTRICT. A security guard stands along a riverside in front of the Lujiazui financial district, during the National People's Congress in Shanghai, China, March 7, 2023.

Aly Song/Reuters

Supervision of China's financial industry, excluding the securities sector, would be handled by a body directly under the State Council, or Cabinet

BEIJING, China – China will form a new national financial regulatory body, consolidating oversight and replacing its banking and insurance watchdog as part of a wider government overhaul announced on Tuesday, March 7, that includes plans for a national data bureau.

The financial regulation proposal, presented to China’s parliament during its annual meeting, would bring supervision of the industry, excluding the securities sector, into a body directly under the State Council, or Cabinet, in an effort to strengthen institutional oversight.

Last week, President Xi Jinping, who clinched a precedent-breaking third leadership term in October, renewed his call for ambitious reforms of Communist Party and state institutions.

The National People’s Congress, which closes on Monday, March 13, is also set to confirm a slate of new leaders including Li Qiang, who is set to be the next premier, in what is expected to be the biggest government reshuffle in a decade.

Under the new plan, the China Banking and Insurance Regulatory Commission (CBIRC) will be abolished, with its responsibilities moved to the new administration along with certain functions of the central bank and securities regulator.

As part of the wider government revamp, staff numbers at central-level state institutions will be cut by 5%.

“The overhaul of financial regulation framework reflects the new focus on ‘dual circulation’ – both domestic and global circulation of the economy – and ‘uniform national markets,'” said Winston Ma, an adjunct professor at New York University law school.

“Going forward, different financing markets – equity, debt, and insurance – are set to be regulated in a more holistic way, and at the same time financial markets regulation and industry policy-making are more integrated than before,” he said.

China’s financial sector is currently overseen by the People’s Bank of China (PBOC), the CBIRC, and the China Securities Regulatory Commission (CSRC), with the Cabinet’s Financial Stability and Development Committee having overall purview.

“You could certainly argue for better coordination between regulators but a whole new super regulatory administration may not be the solution,” said Fraser Howie, author of several books on China’s financial system.

“But centralization of power appeals to many in China.”

The legislature will vote on the institutional reform plan on Friday, March 10.

‘Strengthen supervision’

The new administration will “strengthen institutional supervision, supervision of behaviors, and supervision of functions,” according to the plan. Supervision will be “penetrating” and “continuous,” the proposed plan said.

Under the existing setup, the CBIRC combined the equivalent functions of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation in the United States, with some regulatory role held by the central bank, said Li Nan, professor of finance at Shanghai Jiaotong University.

“Now all of those regulatory functions are with the new bureau, which is basically CBIRC with some regulatory role taken back from PBOC and CSRC, which makes perfect sense,” she said.

“And the PBOC will become more focused on monetary policy afterwards, which resembles what the Fed does,” she said.

Under the plan, the PBOC’s nine regional branches will be abolished, replaced by 36 branches across the country, reversing a reform that was implemented in 1998 that had mirrored the US Federal Reserve system.

Separately, sources have said China may revive the Central Financial Work Commission, a high-level financial sector oversight body directly under Communist Party leadership, a decision on which may be revealed after the parliamentary session.

Data regulator

Under the reforms, the government will also set up a bureau responsible for coordinating the sharing and development of data resources, according to a plan submitted to parliament.

The proposed bureau will be run by the powerful state planner, the National Development and Reform Commission, and absorb some of the functions of the Office of the Central Cyberspace Affairs Commission, which oversees China’s internet.

The new bureau’s functions will include the exchange of information resources across industries and promoting smart cities.

China has in recent years strengthened oversight over data, concerned that unchecked collection by private firms could allow rival state actors to weaponize information on infrastructure and other national interests, and the belief that data has become a strategic economic resource.

Beijing will also restructure its science and technology ministry to concentrate resources on achieving breakthroughs, amid US efforts to block Chinese access to key technology. It will also form a Central Commission on Science and Technology, increasing Communist Party control in the field. –

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