Anticorruption campaign shows us that a large administrative system doesn't mean it's a strong and effective one

Opinions have been circulating among scholars arguing about the bright side of China's classic model of a centralized, administration-led government compared with the relatively decentralized, legislature-heavy governments of other nations.

For all its excesses and inadequacies, centralization has been effective in protecting a universal order and the unity of the country, some argue.

The parallel argument is a call among economists for a stronger financial services regulator than the existing bureaucracies that oversee the securities, insurance and banking industries, and to perhaps merge the three.

A super regulator is needed, so goes the proposal, now that the nation holds increasing interest in the world, and the world has in turn become more sensitive to the state of China's economic health.

If leaders remember the heavy price the central government paid in stabilizing the wildly fluctuating stock market last summer, the idea of having a super regulator, armed with greater authority and management expertise, must sound like a good idea.

China's past experience shows that, more often than not, to make any reform plan work it needs to make some restructuring of the government, particularly those usually referred to as the relevant authorities.

The task to change the government is at least as heavy as the task to change the economy. An important part of the reform in the past 40 years has been to replace the old, inefficient offices with the new, more capable public services.

By comparing China's plan for state-owned enterprises, made three years ago, with the apparently lackluster, if not stalled, realities, one can tell there are really different types of administrative authorities in China. Not of all of them are helping the reform with equal effect.

Type one: Administrations commissioned to exercise on a day-to-day basis the central economic power, such as development strategies and approving national-level public projects. They are joined by administrations responsible for drawing up policies and rules in specific industries and areas, and policing their implementation. An encouraging thing is that the country's environmental protection agencies are moving in this direction.

Type two: Administrations commissioned to provide useful information and informed opinions for policymakers, such as the State Council Development Research Center and the National Bureau of Statistics.

Type three: Administrations commissioned to deliver specific products and services, such as spaceships and space voyages.

Type four: Administrations without the power, for some reason, to initiate change independently, and which therefore in reality have nothing to do. A typical case would be the agency that oversees SOEs. No government agency can easily impose a change on the SOEs because they are all publicly listed companies, and any plan for change needs to be submitted for approval from their general assemblies. The only possible role for the agency is to act as a SOE lobby, to campaign for more lenient SOE reform policies and to retain monopolies in their industries.

The present state of the regulatory agencies in the financial services industry may be close to this type. They are unable to act as change leaders because of their limited - and at times mutually conflicting - authorities and their lack of expertise.

There is also a factor of path dependency in their situation: When those regulatory agencies were set up, especially in the case of the China Securities Regulatory Commission, their top duty was not to protect the investors, but to help the state and help SOEs raise money from society when they were no longer credit-worthy for banks. Then it was to help provinces and administrative systems to list their financial vehicles so they could cut a slice of the burgeoning capital market.

In the process, many financial companies were molded by the environment they grew up in and became experts only in selling concepts, not real performances.

A case in point is the P2P companies that have gone down one after another in the past couple of years. Operating in a vacuum of regulation, or when different administrations were still fighting for regulatory power, these self-styled financial industry innovations caused huge losses for investors.

Plenty of lessons can be learned from the anticorruption campaign that having a large administrative system doesn't mean having a really strong and effective one. So it seems a more sensible move for China to build a super financial regulator that is equipped with enough power and expertise to lead changes.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn

(China Daily European Weekly 06/24/2016 page12)