China revives ruling party control of financial oversight

People pose with the Chinese Communist Party flag during a visit to the Museum of the Communist Party of China 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 ImagesBEIJING — The ruling Communist Party of China is establishing commissions to oversee finance and tech, state media announced Thursday.The changes come as Chinese President Xi Jinping sees unity under the party as essential for building up the country. That contrasts with a tendency of Chinese leaders in past 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 over financial work,” state media said Thursday in Chinese, according to a CNBC translation. The commission is responsible for high-level planning in financial stability and development, the report said.The Chinese government’s annual legislative meeting this month emphasized that addressing financial risks is a priority for policymakers this year.The report said the new commission’s administrative office will take on the responsibilities of the State Council’s Financial Stability and Development Committee — a group once overseen by the essentially retired Liu He and now dissolved.Alongside that administrative office, a “Central Financial Work Commission” will be established to focus on ideological and party-related work in the finance industry, state media said.While state media did not specify, a financial work commission of the same name had been set up in the aftermath of the 1998 Asian financial crisis. The commission was dissolved after about five years, leading to the establishment of the now-defunct China banking regulator in 2003.It’s unclear how the commission’s future work will compare with history.Back in the late 1990s and early 2000s, the Central Financial Work Commission helped to make financial regulation and supervision more streamlined — minimizing the influence of powerful interest groups on regulators, Sebastian Heilmann, professor of political economy of China at the University of Trier, said in a paper. He later became founding president of the Mercator Institute for China Studies.”But the hierarchical institutions of Party control were incapable of introducing market-based incentive structures for financial executives and failed to suppress financial mismanagement and corruption,” Heilmann wrote in 2004. “Moreover, they caused frictions with the emerging new forms of corporate governance and the increasing activity of foreign investors.”Tech and State Council restructuringThursday’s announcement included previously released details on plans to restructure the State Council — the Chinese government’s top executive body — with the establishment of the Central Science and Technology Commission.Responsibilities of that party commission are borne by the restructured Ministry of Science and Technology.The State Council changes established a National Financial Regulatory Administration to oversee most of the financial industry — except for the securities industry. The plan also changed the designation of the China Securities Regulatory Commission within the State Council from one similar to the council’s Development Research Center to that of the customs agency.Read more about China from CNBC ProBeijing has yet to announce who will head the financial administration or the new party commissions.The changes announced Thursday are set to take effect at a national level by the end of this year.Other new commissions include groups to oversee the party’s work in industry associations, and the affairs of Hong Kong and Macao, state media said. Beijing has tightened its control of the regions, which — under the “one country, two systems” structure — enjoy freedoms non-existent on the mainland.Xi — president of China and general secretary of the party — has consolidated his power and overseen increased party presence in the economy, including among businesses that aren’t state-owned.The new commissions are part of the party’s central committee, which has about 200 members. From those members come the core leadership — the Politburo and its standing committee.Membership changes are made every five years at party congresses, the most recent of which was held in October. At that congress, Xi paved the way for his unprecedented third term as president and packed party leadership with loyalists.

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