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Chinese Centralization and Control

January 23, 2018

China’s new leadership appointments over the last six months are likely to move China in the direction of additional economic and controlling centralization. Success over the last five years has given the government enough confidence to scale up micromanaging efforts at the sector level.

 

The financial sector in particular will witness a more comprehensive set of regulations within insurers, wealth-management companies, and online financial-service providers. In the past, highly popular asset managers were often able to achieve status without a regulatory license. In the next year even small incremental services will be difficult to launch without government approval. Transaction-wise, all online payments in China will have to pass through a central government-run clearing house. While such regulation might appear concerning, it is important to remember that in the past foreign investors have cited regulatory uncertainty as a primary concern - the new regulatory framework in China is expected to greatly reduce previously crippling ambiguity.

 

China is currently establishing the National Supervision Commission, an anti-corruption agency whose advantage is rooting out local noncompliance and making an example of officials and executives. Previously existing anticorruption agencies will be consolidated under the commission, which will oversee inspections of all government departments, state-owned firms, and institutions. Despite criticism of such a commission arising due to conflicts with the Chinese constitution, those hurdles will prove themselves to be temporary.

 

Keith Knutsson of

 

stated, “standardizing the economic experience within China is extremely important for foreign investment. In terms of economic control in transactions, China’s amount of non-electronic payments is expected to diminish by 2020 anyway - a mass supervision of transactions does not seem far-fetched.”

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