China’s Bold Move: Shaking Up Bureaucracy for Technological Dominance

President Xi Jinping has commenced his third term in office by initiating administrative overhauls aimed at ensuring financial stability and economic resilience in the face of both internal and external pressures.

The “two sessions,” an annual legislative gathering, witnessed a significant restructuring that affected twelve central government institutions. Additionally, the Communist Party of China is in the process of creating new commissions to exert tighter control from Beijing, a move that will further reduce the role of the State Council, China’s cabinet.

The Chinese parliament has authorized state reforms, including the establishment of a national data bureau tasked with managing national security risks associated with private sector data collection. Also noteworthy is the introduction of a new financial regulator responsible for overseeing China’s $60 trillion financial sector.

The present banking and insurance commission in China will be replaced by the National Financial Regulatory Administration, which will be under the State Council’s supervision and will not handle monetary policy or the stock exchange.

According to Guonan Ma, a senior fellow at the Asia Society Policy Institute’s Center for China Analysis, the new super-regulator will combine most regulatory activities into one agency, except for the central bank and securities regulator, and will lead to better coordination in anticipation of increasing financial risks in the future.

Ma believes that as the Chinese economy transforms, there will be a broadening of financial risks across the economy, particularly in consumer credit, due to a more consumer-driven economy. Structural challenges faced by Beijing policymakers include a housing sector in crisis and high fiscal burdens linked to public health expenditure at the local government level during the pandemic.

To alleviate some of this budgetary pressure, the Chinese government plans to cut the civil service by 5%, with excess personnel being redirected to other areas, such as the new data bureau. Ma suggests that the government may use this cut to contain bureaucracy and allocate resources to hiring civil servants with new skills and for new tasks.

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