BeijingChina’s President Xi Jinping has begun his historic third term with a radical reorganization of government institutions. The National People’s Congress (NPC) on Friday approved the creation of two new regulatory bodies that will report directly to the Chinese Communist Party (CCP) apparatus and not to ministries or other agencies. China is thus taking another step to blur the divide between government and party, with the creation of these new super-organisms under the control of the CCP that aim to promote key sectors such as finance or technology.
The restructuring also includes the reduction of 5% of central government officials. The measure does not directly involve dismissals of workers, but transfers and salary reductions. In this way, the party increases its ability to influence, stimulate and control the development of key reforms. Although the Chinese president has reiterated his defense of the private sector, the reality is that both state-owned and private companies will come under the sway of the new regulators.
Xi’s two terms have been characterized by a bid to return power to state-owned enterprises and by planning policies, contrary to the previous liberalization movement. Since 2018, Xi has been transferring power from the State Council, the Chinese government, to Party institutions. It is a key transformation that reverses the path begun by Deng Xiaoping’s post-Cultural Revolution reforms, which prioritized economic development and reduced the Party’s ideological influence. Now the Chinese president wants to centralize power to further strengthen control over the economy and prevent the disorderly expansion of capital.
Technological self-sufficiency
Sanctions imposed by the United States on the supply of state-of-the-art chips to Chinese companies have been a severe blow that will slow down the development of the Asian giant. Achieving technological self-sufficiency is one of Xi Jinping’s goals. To achieve this, it has been agreed to reorganize the Ministry of Science and Technology. A new superorganism is created dedicated to promoting technological and scientific self-sufficiency to avoid, according to what has been announced at the ANP plenary session, foreign attempts to “contain and suppress” China. The regulator will strengthen the supervision of the sector by the PCX and will be in charge of evaluating research projects.
Regulation of the financial sector
To strengthen the financial system in the face of non-payment problems and alleged foreign threats, the creation of the National Financial Regulation Commission has also been announced. The new body absorbs the Securities Regulatory Commission and some functions of the People’s Bank of China. The reform further centralizes control over the financial system instead of liberalizing it. Events such as the arrest of the financier Bao Fan last month warn of the risks that entrepreneurs can suffer.
Bao is a director of investment bank China Renaissance Holdings. As has happened with other businessmen, his disappearance was first announced, only to be reported days later that he was cooperating in a corruption investigation. But it is not known what he is accused of, what is being investigated, who arrested him and where he is. The opacity of Chinese justice allows these detentions, which usually last for months without charges being filed. The arrest is also interpreted as a warning to the sector.
Xi pushes for more control over financial system: Financier Bao Fan’s arrest last month warns of new risks for Chinese entrepreneurs
During this week’s plenary session, Xi Jinping struck a balance to convey confidence in the private sector and continue to attract investment in the face of increasingly interventionist reforms. In one of his speeches, Xi stressed how important the private sector is to the Chinese economy, but also called on private entrepreneurs to “be rich and responsible, rich and fair, rich and loving.” He asked above all that they avoid Western hedonism.
The review of the financial regulatory system also includes salary cuts for some civil servants and equalizing their pay with that of other areas. Until now in some departments higher wages were paid, and even justified as a measure to avoid corruption.
China will also create the National Data Bureau to centralize the security of state-owned data, regulate the digital economy and develop a national strategy of big data. In this regard, it should be clarified that the data that is collected also includes the data of private companies. Beijing has carried out a campaign against internet companies such as Alibaba or Didi (the Chinese Uber) for violating data protection.