BEIJING -- The Chinese government unveiled its biggest reorganization in many years on Tuesday, regrouping a number of ministries and agencies and merging two key financial regulatory bodies.
The administrative revamp, expected to be voted on by the National People's Congress next Saturday, follows the rubber-stamp parliament's vote to remove presidential term limits on Sunday and underscores President Xi Jinping's efforts to centralize authority.
"These proposals are in line with the leadership's decision to deepen reforms in the party and state institutions, leading to the aspiration of achieving a prosperous society," State Councilor Wang Yong told some 3,000 lawmakers assembled at the Great Hall of the People in the capital.
The China Banking Regulatory Commission and the China Insurance Regulatory Commission will be merged into a combined agency that will report directly to the State Council, China's cabinet. The merger, along with the establishment of the Financial Stability and Development Committee last year, underscores Beijing's emphasis on tightening control over the country's financial institutions, which have been operating under the shadow of high levels of debts at corporations and local governments.
"There is no doubt that the new regulator will have more power than those of the previous two combined," said Liao Qun, chief economist at state-owned China CITIC Bank International. He said that the consolidation of power will allow authorities to regulate "gray areas" that have fallen between the cracks of the current system.
The People's Bank of China, the central bank, will taking over some of the two agencies' previous responsibilities for drafting new laws.
"The consolidation of the banking and insurance regulators would streamline and unify regulation, especially on shadow-banking activities, by reducing the room for regulatory arbitrage," analysts at Moody's Investors Service said on Tuesday. "We expect the merged regulator would adopt a more effective approach."
Regulators are seeking to tighten oversight over trust companies and entrusted loans, a form of lending arranged by financial institutions that has largely escaped supervision. Writing before the announcement, Mizuho economists Jianguang Shen and Serena Zhou said in a research note, "It is a known fact that the conflict of interest among the PBOC and other financial regulators in China has been hampering policy co-ordination and brewing risk in the financial system."
Outgoing PBOC Governor Zhou Xiaochuan said last Friday that while the authorities have made progress with deleveraging through a crackdown on shadow banking, further improvements are needed to prevent risk from upsetting the economy as a whole. Zhou's successor, a matter of great speculation, is expected to be named by next week.
The reorganization will also create a National Supervisory Committee to oversee both the country's fight against corruption and make sure that officials are following central directives. Xi's anti-corruption campaign was previously led by the Communist Party's Central Commission for Discipline Inspection.
In a closed-door meeting on Saturday with delegates from Chongqing, which the authorities have portrayed as a graft hotbed, Xi warned, "Don't be dragged into muddy water by people around you," according to state news agency Xinhua.
The NSC will oversee corresponding commissions at local government levels and will cover both party and state officials. It will investigate cases of bribery, embezzlement and abuse of power, among other offenses. Matt Schrader, an analyst with business intelligence company The Crumpton Group, wrote in an online commentary that the NSC marks a "dramatic expansion" of Xi's anti-corruption campaign.
Another element of the restructuring will cut the number of cabinet ministries and state agencies by about one third to 26. This regrouping of powers will see the creation of new ministries for natural resources, veteran affairs, emergency management, international development cooperation and immigration.
