China's economic policy: So just who is in charge?

China's economic policy: So just who is in charge?

A vast array of forces and actors - many of them pulling in opposing directions - are at work in China's increasingly pluralised political economy. The country's policymaking structure is often characterised by contradictions, being both authoritarian, due to the absolute power that the Chinese Communist Party (CCP) wields, and fragmented at the same time, say experts.

But the opaqueness of the system, the intimate ties between the government and the ruling party, and the overlapping functions of many of China's government agencies have made it hard to determine who is actually in charge.

On paper, it is the State Council, China's 35-member Cabinet headed by Premier Li Keqiang, that is at the apex of policymaking.

It also maintains the daily running of economic affairs.

But experts say President Xi Jinping has shifted the locus of decision-making back to the CCP, and to himself, since he took power in November 2012.

Major decisions regarding monetary policy or financial regulation must be approved by the State Council, or by its 10-member executive committee made up of Mr Li and China's vice-premiers and state councillors. Many of them have portfolios cutting across various areas, allowing them to play a key role in mediating disputes and coordinating policy.

This means that China's central bank head Zhou Xiaochuan, for instance, is far less influential than United States Federal Reserve chair Janet Yellen, as the People's Bank of China (PBoC) does not have the independence to make big decisions, such as the raising or lowering of interest rates, without the approval of the State Council or top party leaders. Key economic agencies in the council include the Finance, Commerce, and Industry and Information Technology ministries.

The PBoC and the top economic planner - the National Development and Reform Commission (NDRC) - are also included, together with financial regulators like the China Securities Regulatory Commission (CSRC) and the China Banking Regulatory Commission.

These government bodies are all equally ranked as ministry level, meaning that they cannot issue binding orders to one another, with many also sharing overlapping mandates on functional issues.

At times, they also battle for influence. The central bank, for instance, successfully argued in favour of avoiding broad monetary stimulus for the first two years of the Xi administration to promote restructuring, staving off calls from the NDRC for a loosening of ratesto boost flagging growth, according to media reports.

THREE KEY PLAYERS

Professor Li Daokui, a leading Chinese economist and former central bank official, revealed in a recent interview with Phoenix News that it is the Finance Ministry, central bank and the NDRC that often lead policymaking on economic and market-related issues.

"On important policies to do with foreign exchange and currency, it is the central finance and economics leading small group (CFELSG) that greatly discusses and considers these issues before also having the final say," he said.

The CFELSG, first introduced in 1980, is a high-level party committee that allows the CCP to continue managing and having oversight of China's economic affairs.

It is headed by Mr Xi now and includes members such as Mr Zhou and NDRC head Xu Shaoshi.

In instances when an issue straddles various agencies, however, representatives of all relevant bodies become part of an ad hoc committee, according to a report analysing China's economic decision-making by Washington-based think-tank Centre for Strategic and International Studies (CSIS).

"Either after extensive negotiation or based on a mandate from above, one agency is then designated as the lead and placed in charge of coordinating on the project," say co-authors Matthew Goodman and David Parker.

"But in the highly rank-conscious environment of Chinese public administration, the effectiveness of coordination is then almost completely dependent on the lead ministry's influence within the broader policymaking apparatus, or its ability to attract and retain the attention of top leaders," they add.

STATE COUNCIL STEPS IN

Perceived missteps by existing regulators can also lead to the State Council stepping in.

The CSRC's botched handling of the stock market crash, for instance, has led to the Cabinet taking on a bigger role in overseeing financial markets, reports say.

It has set up a working group to prepare for the upgrading of the Cabinet's financial department to bureau level, said Reuters, quoting a source.

The council has also created a new department within its general office to coordinate between the financial and economic regulators, according to Bloomberg.

Ultimately, however, it is the ruling party that has the final say, and Mr Xi has taken steps to re-emphasise the CCP's role in economic policymaking since he took power, CSIS experts say.

Not only did he personally back a key economic summit in 2013 that pledged to give the markets a "decisive" role in the economy, but he also shifted the centre of decision-making into new party institutions and out of the hands of China's gridlocked state bureaucracy. Many of these, including a new, comprehensively deepening reform leading small group created during the 2013 meeting, are chaired by Mr Xi himself and staffed by trusted advisers.

The report said: "Through these and other actions, Mr Xi has demonstrated a rapid, opaque and personalised style of decision-making designed to reassert centralised control over economic policymaking and allow experts in Beijing to design and drive a top-level design of reform."


This article was first published on Jan 17, 2016.
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