Reform of key financial mechanisms was top of the agenda at the
Central Economic Working Conference of 2002, which closed on
December 10. According to a recent
Business Post report, the
People's Bank of
China, that is the central bank, might expect to enjoy more
independence after a possible reorganization in 2003.
There is a proposal to set up a new organization to be known as the
China Banking Regulatory Commission. It is believed that the move
would split off the central bank's financial supervisory function
while strengthening its role in monetary decision-making.
Insiders consider this to be a possible development following the
establishment of a Central Financial Security Lead Team in November
2002. This is directed by vice-premier and newly elected standing
politburo member Wen Jiabao.
The annual cycle would see China's economic decision-makers drawing
up strategy planning in the spring. This builds on preparatory work
carried out by the Central Economic Working Conference during the
preceding winter. Financial reform, one of the four highlights of
the conference, has long been an issue requiring careful attention
by China's top decision-makers.
An
official with the Central Financial Working Committee, who declined
to be named, considered that the main issue in restructuring
China's financial mechanisms would be to separate the central
bank's financial supervisory function from its role in monetary
policymaking.
An
official with the central bank told Business Post that such
a move would allow the central bank to concentrate on making
monetary policy and then on supervising the implementation of that
policy. He added that if a China Banking Regulatory Commission were
to be set up, it could perform a financial supervision role in much
the same way as either the China
Securities Regulatory Commission (CSRC) or the China Insurance
Regulatory Commission (CIRC).
The point of view that the central bank should concentrate on
monetary policy rather than financial supervision has been brought
forward by experts with the Development Research
Center of the State Council. They see financial supervision as
an ongoing function of government whereas monetary decision-making
is a matter for legislation. The independence of monetary
policy-making could be compromised with a Central Bank required to
perform both functions.
A
China Banking Regulatory Commission would come directly under the
leadership of the Central Financial Security Lead Team and the
People's Bank of China. This is being spoken of as transitional
arrangement only while the People's Bank of China gradually steps
back from responsibility for the supervisory function.
Central government is aware of the importance of convening a
Central Financial Working Conference, but the date has not yet been
set. If the scheme being proposed were to be adopted at the
conference, the way would be clear for the central bank to go on to
become more independent with regard to monetary policy.
The Law of the People's Republic of China on the People's Bank of
China promulgated in 1995 strengthened the independence of the
central bank. However it remains a branch of government and so has
only limited independence on monetary policy. For example changes
in interest rates or money supply require the approval of the State
Council.
However many economists have shown that Central Bank Independence
(CBI) would have the potential to significantly influence target
setting and the effectiveness of monetary policy. According to
international experts, CBI would include independence on target
setting, economic independence and political independence. China
has some catching up to do in each of these three areas.
Currently the Law of the People's Republic of China on the People's
Bank of China stipulates that the three core functions of the
central bank are monetary policymaking, financial supervision and
its role in payment and clearance activities. Proposals to amend
this law could be brought to the next National People's
Congress.
In
the words of one official, the implementation of financial reform
could bring a redeployment of staff way beyond what they might
imagine today.
(china.org.cn by Tang Fuchun January 1, 2003)