Editor's note: Pan Helin is a co-director and researcher at the Digital Economy and Financial Innovation Research Center of Zhejiang University International Joint Business School, and researcher at the Financial Technology Research Institute of Zhejiang University. The article has been translated and edited for length and clarity. It reflects the author's opinions and not necessarily the views of CGTN.
China's State Council institution reform plan was passed on Friday.
In particular, reforms relating to the regulation of the financial system received significant attention.
The main points of the financial regulation system reforms are as follow: first, China will set up a national financial regulatory administration, established on the foundation of the China Banking and Insurance Regulatory Commission which will not be retained; second, the China Securities Regulatory Commission (CSRC) will become a government agency, rather than a public institution, directly under the State Council. Certain functions of the People's Bank of China (PBOC) and the CSRC will be transferred to the new administration; third, the PBOC, the central bank, will become an institution directly under the State Council, followed by reorganization of local branches; forth, the reform of regulatory mechanism on state-owned financial capital. All personnel of the related financial regulatory organizations will become civil servants.
The main objectives of the financial regulatory reforms are as follows:
First, to clarify the functions and authorities. There were overlaps in the responsibilities of the financial institutions. For example, the central bank is responsible for protecting financial consumers, while the CSRC is responsible for protecting investors. However, some investment products involve both financial consumption and investment. Therefore, the reforms of the financial regulatory system combines the responsibility of protecting investors and consumers under a national financial regulatory administration. After the reforms, the different functions will be clearer and financial regulation will be more efficient.
Second, to improve the legal standing of financial regulators. In the past, many financial regulators were public institutions and lacked the authority to perform their duties. The reforms will also serve to unify and standardize the management and responsibilities of financial regulators.
Third, to consider overall supervision and differentiated supervision, which closely follows the development of the financial markets. Great changes have taken place in the financial market with the rapid development of financial technology. For example, existing financial institutions are no longer able to service the separated systems of brokerages, insurance and banks, nor the emergence of diversified financial institutions such as mobile payment institutions, consumer finance companies, digital banks and mortgage guarantee companies. The previous division of financial supervision responsibilities and institutional layout is not suitable for the current landscape. Therefore, financial regulation is required to evolve accordingly. On the one hand, the new system stresses overall supervision. The proposed national financial regulatory administration will be in charge of the overall regulation of the financial industry (apart from the securities sector). On the other hand, the new system also emphasizes on targeted supervision, such as the CSRC's focusing on enterprise regulation.
To sum up, the ultimate purpose of these reforms is to strengthen financial supervision, improve the executive power of financial regulators and maintain the order of financial markets.
The significance of the financial regulatory reforms has two aspects:
Firstly, the new system of financial regulation will boost investor and consumer confidence. A strong financial regulatory system is to enhance mutual trust and thereby build the long-term confidence of financial investors and consumers, laying the foundation for the sustainable prosperity of China's financial markets. On the other hand, the new system will effectively prevent financial risks. As a result of the U.S. Federal Reserve raising interest rates, the U.S. and Europe entered a period of high inflation, facing economic recession. China should be well prepared to prevent financial risks. Hence, the primary task is to strengthen supervision and identify potential risks within the system to prevent financial disasters from happening.
The long-term significance of the new financial regulatory system is to enhance confidence, prevent risks and promote economic openness. After the reforms, China's financial market will become bigger and stronger. The financial services industry will develop and grow.