China’s Financial Regulation Overhaul Seeks To Boost Confidence

Beijing's overhaul announcement and state media coverage sought to boost consumer and investor confidence, which has been shaken by the Chinese economy's slow emergence from Covid-19 lockdowns.

Better risk management and stronger economic development were among the benefits headlined as state media touted government moves to overhaul China’s financial regulatory system this week. But mirroring Washington’s market-calming assurances following the failures of Silicon Valley Bank and Signature Bank, Beijing’s overhaul announcement and state media coverage also sought to boost consumer and investor confidence, which has been shaken by the Chinese economy’s slow emergence from Covid-19 lockdowns.

US President Joe Biden spoke from Washington Monday to dispel U.S. fears. On the other side of the Pacific, Securities Daily newspaper reported that the overhaul has the support of Tian Xuan, associate dean and professor of finance at Tsinghua University’s PBC School of Finance, for its “people-centered” focus and investor protection provisions.

Tian, who was a delegate to the National People’s Congress, is frequently featured in state news reports as an advocate of financial reform. He was also quoted in the state-run People’s Daily predicting the overhaul will enhance market and business owner confidence.

Announced at the weeklong National People’s Congress, which closed Tuesday, the overhaul introduced a new State Financial Regulatory Administration, which assumes some tasks of the People’s Bank of China and all functions of the China Banking Insurance Regulatory Commission, an agency formed by a similar overhaul in 2018 but that’s now been scrapped. The changes also included tightening Beijing’s control of the China Securities Regulatory Commission, which oversees the nation’s stock, bond and futures markets. The commission loses a degree of independence, falling under direct control of the State Council, China’s cabinet.

Exactly how this reshuffling will affect day-to-day financial oversight of the world’s second-largest economy has yet to be spelled out by the government. But the State Council released a long list of goals, including “strengthening institutional supervision, … coordinating and being responsible for protecting consumers’ financial rights and interests, [and] strengthening risk management.”

Chinese President Xi Jinping’s one-party Communist government conducted only internal discussions before the overhaul was unveiled by the State Council and, without debate, rubber-stamped at the People’s Congress. The process stands in contrast with the current debate in Washington over banking regulation, which the two bank failures made an instant political football.

Business confidence in China lagged through last month’s annual Spring Festival, when much economic activity shuts down, although the latest Caixin China General Manufacturing PMI index rose to 51.6 in February from 49.2 in January, marking the first jump in manufacturer activity since July and the fastest rate of expansion since May 2021.

Beijing has set a 2023 GDP growth target of 5% compared with a relatively anemic 3% last year, before Covid restrictions were lifted in December.