China is overhauling ministries to rival the West in technology

China will overhaul oversight of its financial system and strengthen science and technology to try to catch up with the West, while Xi Jinping enters a third term as president with one of the biggest state apparatus reforms in years.

The changes — part of a series of ministerial reforms by China’s State Council, the country’s cabinet — include the establishment of a new financial oversight commission, restructuring the science and technology ministry and creating a department to oversee China’s vast data trove.

The measures come as Xi seeks a tighter grip on the government at this week’s annual session of China’s parliamentary legislature as he begins a third five-year term.

The newly constituted science ministry will seek to combine education and research with practical applications and build a “national technology transfer system,” state media said, without elaborating.

The overhaul reflects the Chinese leadership’s focus on building the country’s semiconductor industry, which has been battered by US restrictions on sales of high-end chips and related machinery to China.

“In critical areas, we must be self-reliant and maintain control,” Xi told delegates on Sunday. “First-class technology that is strong and self-controlled is essential to our high-quality development.”

Rory Green, economist at TS Lombard, said the overhaul “looks like an attempt to restructure the party-state to align with Xi Jinping’s longer-term policy goals.”

He said the changes aimed to create a “shared prosperity” political economic model, using Xi’s term for a system that distributes wealth more equitably. “Xi’s core goals are security. . . technology upgrade [and] risk avoidance,” Green said.

As part of the reforms, China will create a State Financial Supervision Commission out of the current banking and insurance regulator to oversee all activities in these sectors except securities.

This is intended to “solve long-term problems in finance and bring all kinds of financial activities under supervision,” according to Xiao Jie, secretary-general of the cabinet.

China faces growing risks from mounting debt in the financial system, as illustrated by the collapse of Evergrande, the country’s most heavily indebted real estate developer.

Rapid financial innovation, including the fast-growing online payment services offered by internet billionaire Jack Ma’s Ant Group, is also prompting calls for more regulatory coordination and improvements in consumer protections.

The tasks of the new Commission include the supervision of financial conglomerates and consumer protection. These functions were formerly partially performed by the People’s Bank of China and the market regulator, the China Securities Regulatory Commission.

However, the CSRC will also be strengthened as part of the overhaul. It will report directly to Cabinet and oversee bond issuance, including billions of dollars in debt, issued by local government financing vehicles (LGFVs). It currently shares this responsibility with the National Development and Reform Commission, which oversees state-owned enterprises.

“The CSRC is becoming more powerful, which is good,” said Ji Shaofeng, a former Chinese financial regulator. Bonds issued by LGFVs “have a lot of problems because [the] NDRC saw them as a way to raise capital for local governments rather than focusing on financial risk,” he added.

China will also set up a national data bureau to oversee and protect the country’s mountain of data, according to the overhaul plan.

Chen Long, co-founder of Beijing-based research firm Plenum, said the new office should bring more clarity.

Beijing also said it would cut staff in state institutions by 5 percent. Local offices of the PBoC will be streamlined and employees in the financial regulatory system will be paid on the same basis as civil servants, potentially resulting in pay cuts for them.

Ryan McMorrow, Sun Yu, Joe Leahy and Nian Liu in Beijing, Cheng Leng and Eleanor Olcott in Hong Kong