Mar 15, 2018 07:25 PM

Opinion: Government Overhaul Dismantles Agencies to Build Something New

*Reform plan embodies a shift from agencies managing sectors, to being responsible for certain functions

*The plan to redraw China’s tax system represents a major rebalancing in central, local power

The National People’s Congress on Tuesday heard the State Council’s plan to reshuffle government agencies. The move, which the People’s Daily called “the most farsighted and courageous program in nearly 40 years,” will remove eight ministerial-level bodies and seven vice-ministerial-level bodies while creating or rebuilding a number of new agencies.

‘Functional management’

The biggest theme of this reform is a shift from sector management to functional management.

In the previous seven central government reshuffles, the core idea was “super ministries” — cabinet departments were cut from around 100 before 1982 to 25 bigger bodies in 2013. At the heart of the 25-agency setup is “sector management,” which brought together all the responsibilities associated with an industry or sector under the same ministry.

For example, a new Ministry of Transport was created in 2008, after the merger of the former Ministry of Communications, the National Civil Aviation Administration and the State Post Bureau. The Ministry of Commerce, founded in 2003, was a combination of the former State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation.

The most prominent feature of this latest round of cabinet reform is “functional management,” which aims to end the industry-based division of administration.

For example, the planned Ministry of Natural Resources will incorporate the functions of the current Ministry of Land and Resources, part of the planning functions of the National Development and Reform Commission (NDRC), and the urban-rural planning responsibilities of the Ministry of Housing and Urban-Rural Development. It will also absorb some functions of the Ministry of Water Resources, the Ministry of Agriculture, the State Oceanic Administration and National Administration of Surveying, Mapping and Geoinformation. The Ministry of Natural Resources’ power will span multiple former government agencies.

Also, the new Ministry of Ecological Environment will reorganize the functions of the current Ministry of Environmental Protection, the climate change functions of the National Development and Reform Commission, the ground water pollution prevention functions of the Ministry of Land and Resources, the water zoning role of the Ministry of Water Resources, the farming pollution control duties of the Ministry of Agriculture and the onus for marine environmental protection of the State Oceanic Administration.

The reform of financial institutions also highlights “functional management.” The government plans to combine the China Banking Regulatory Commission with the China Insurance Regulatory Commission, while letting the central bank assume their power to set industry rules. This means the government is strengthening the central bank’s power in a bid to centralize financial supervision.

We think the change from “industry management” to “functional management” aims to conform to the central government’s recent policy adjustment from “high-speed” economic growth to “high-quality” growth. Government agencies have to adjust accordingly. The previous reforms to create “super ministries” were focused on the centralized supervision of certain sector, which helped to simplify the management and avoid conflicting commands coming from different departments. But the super ministries, on the other hand, also lead to industrial protectionism, sacrificing the quality of development to ensure speed.

High-quality growth has reduced the pressure for speed, and raised the bar for environmental protection, resource use and rural development. This is the reason why the new Ministry of Natural Resources, Ministry of Ecological Environment and Ministry of Agriculture and Rural Affairs will greatly expand the power of their predecessors. Only in this way can China break the excessive “paternalism” seen in the management of many sectors, better focus on more urgent and outstanding issues, and achieve high-quality development.

Division of powers

The second key point of the State Council restructuring is the proper division of planning, enforcement and supervisory power.

For example, the responsibility for urban and rural planning, which has been under the Ministry of Housing and Urban-Rural Development, will be reassigned to the Ministry of Natural Resources; the Ministry of Water Resources’ water zoning function will be put under the Ministry of Ecological Environment; the audit and supervisory functions of the State-Owned Assets Supervision and Administration will be assigned to the National Audit Office; and the right to formulate banking and insurance rules will be shouldered by the central bank.

These reforms are very different from the centralized management approach of the past. Instead, they embody an approach similar to the “separation of powers,” which helps to avoid one government department being a referee and an athlete at the same time. It can also prevent abuse of power, reduce systemic risks and help to safeguard the interests of the state and the people.

Rare move on veterans’ affairs

As one of the only two “upgraded” ministries in the institutional reform (the other is the Ministry of Emergency Management), the Ministry of Veterans Affairs was formed by combining some of the relevant responsibilities of the former Ministry of Civil Affairs, the Ministry of Human Resources and Social Security, the Central Military Commission’s political work department and department of logistics. This reflects the high-level attention this administration is paying to the military personnel work.

Retired servicemen belong to a subgroup among the social divisions of labor. Establishing a separate ministry to guarantee the better treatment of veterans is a manifestation of how much importance has been placed on military personnel in this institutional reform.

On Jan. 1, 2016, the Central Military Commission issued a document on deepening military reform, kickstarting the largest reform in history that was aimed at enhancing the military’s combat capability by restructuring the different branches and smoothing out personnel management. The establishment of the Ministry of Veterans Affairs is a concrete move in the context of military reform.

Merger of tax agencies

The reform of the tax system is crucial to the country’s administration, finance and economy. After a major reform that split local and national taxation systems in 1994, the central government has taken the lion’s share of tax revenue, and local governments have been struggling to finance a sustainable economic development. The obligations of the local governments are out of proportion with their share of fiscal income.

The latest reform plans to merge state and local tax agencies. The State Administration of Taxation and provincial governments will manage the tax agencies together, with the tax administration taking the lead. This will not only help to strengthen the supervision of local finance, but also solve the issue of power disputes between the state and local governments.

In addition, the merger of state and local tax agencies will help avoid local governments competing for investment in an unhealthy way. Currently, local governments often lure outside investment through excessively preferential tax and land-use policies. Such policies won’t be sustainable once the state tax authorities have a say in tax policymaking.

NDRC’s power diluted

The National Development and Reform Commission (NDRC) dates back to the National Planning Commission established in 1952. It was a powerful government agency that long assumed the role of the Chinese government in general economic management. With the country’s gradual shift from a planned economy to a market economy, the National Planning Commission decentralized some of its power to other government agencies, and was eventually renamed the National Development and Reform Commission under the State Council. Still, to this day, the NDRC is very powerful and is known as the small State Council.

On the whole, the NDRC has followed the previous practice of decentralization in the latest round of reform. It is also in line with the latest reform’s theme, which emphasizes the concentration of functions in a government body. For example, the NDRC’s power to assign a place’s economic development direction will be handed over to the Ministry of Natural Resources; its responsibility for dealing with climate change has been assigned to the Ministry of Ecological Environment. The changes will help the coordination and rebalancing of ministerial affairs.

To sum up, the core of the latest government restructuring is a shift from sector management to functional management, which will see the division of planning, executing and supervising powers to certain degree. The Ministry of Veterans Affairs will enable the better treatment of military personnel. The merger of national and local tax bureaus will rebalance the central and local governments’ rights and obligations. This round of institutional reform is the basis of the government’s new venture toward high-quality development. It is indeed the most forward-looking and encouraging plan of the last 40 years.

Deng Haiqing is a chief economist with JZ Securities. Chen Xi is a researcher with Haiqing FICC.

Translated by Wu Gang (

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