China unveiled plans on Tuesday for the biggest shakeup of government in at least a decade, including the merger of its banking and insurance regulators to better handle financial risks as leaders look to address concerns over a growing debt pile.
The sweeping changes were presented to the National People's Congress two days after President Xi Jinping tightened his grip on power with the legislature's approval of constitutional amendments abolishing presidential term limits and expanding the authority of the Communist Party over the country's affairs.
State Councilor Wang Yong told delegates of the parliamentary session underway in Beijing that the bureaucratic shuffle was needed to make government more effective and efficient. The reforms "eliminate systematic and institutional deficiencies that have prevented the market from carrying out a decisive role in resource allocation," Wang said.
At the top of the reform list is the government's proposed change combining the insurance and banking regulators into one agency, according to the proposal introduced at the annual session of the rubber-stamp parliament. The new regulator will be capable of "holding the bottom line to prevent systematic financial risk", the parliament document says.
The responsibilities of the two separate regulators currently overlap in some areas, leaving regulatory roles unclear, the document says. "China's whole regulatory system will change directions, from sector oversight to oversight of specific financial activities," said Betty Wang an economist at ANZ Bank. "It will promote coordination and information sharing between different regulators," she said.
The two merged regulators will hand off duties such as proposing laws to the People's Bank of China in a sign that the central bank is beefing up its regulatory role. China is in the midst of a battle against financial risk, as credit in the world's second largest economy has exploded since the financial crisis a decade ago.
Financial regulators have cracked down on major companies - even taking over Anbang Insurance this year - to get a handle on building risk and unwieldy debt that some analysts worry pose a serious threat to China's financial stability. Liu He, President Xi Jinping's top economic advisor, is overseeing that battle on financial risk and praised the reforms as "revolutionary" in an editorial published in the Communist Party mouthpiece People's Daily on Tuesday.
"We should understand the necessity of promoting this deep transformation," Liu wrote of the reforms. Analysts applauded the moves. "The government is taking steps in the right direction for reining financial risks and debt deleveraging," Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong, told Bloomberg.
China is also establishing a national market supervisory management bureau to ensure a "fair competition in the market". The new bureau will bring together a number of separate departments under one roof, regulating everything from businesses to quality supervision to food and drug safety, according to the document. The proposed changes put forth in the document are expected to be approved by the National People's Congress legislature, which ends its session next Tuesday. The draft also includes a new immigration bureau and changes to the tax system. In total, China will have 26 ministries and commissions when the changes are formally approved.
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