Beijing is attempting two monumental tasks simultaneously: a significant deleveraging program to reduce risk in the financial sector, and an overhaul of the financial regulatory structure to prevent such risks from recurring in the future. The move from specialized regulation to a more comprehensive framework under the State Council is reasonable and long overdue.
These changes are primarily about streamlining decision-making and improving oversight. They will put competent central bank staff in charge of prudential policymaking. They will not make financial regulators independent, reduce their co-optation by domestic industry, or sharpen their focus on consumer welfare. The deleveraging campaign will remain in place and is now shifting to restructuring the leverage growth within the financial system.
