March 20, 2018 / 2:52 AM / a year ago

Breakingviews - China's regulatory mega-merger howls for synergies

Chinese President Xi Jinping (L) talks with Premier Li Keqiang at the fourth plenary session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 13, 2018. REUTERS/Jason Lee

HONG KONG (Reuters Breakingviews) - China’s regulatory mega-merger cries out for some significant synergies. A newly simplified organizational chart combines banking and insurance regulation while eliminating and consolidating the work of other ministries. It should reduce fees, red tape and corruption. The benefits will be limited, though, if headcounts aren’t slashed, too. The country’s 7 million bureaucrats have grown too fond of mindless crackdowns.

The Chinese Communist Party has long struggled to balance a desire to guide the economy against one to improve global competitiveness. The recent move by the United States to cut corporate taxes provoked a domestic debate over whether Beijing should do the same. Its 25 percent tax rate is hardly onerous. More detrimental, both to creativity and efficiency, is the time and money companies waste wheedling paper-pushers for permission.

A dramatic anti-corruption campaign has, oddly enough, aggravated the problem. Where executives once could pay their way around some patently absurd requirements – China places 77th on Transparency International’s index of perceived levels of corruption – they must now go through the motions. Since officials are reasonably wary of approving activities they might later regret, they lean toward rejection. The world’s second-largest economy ranks just 78th in the World Bank’s 2018 ease of doing business survey, between the Kyrgyz Republic and Panama.

Low-paying government work has lost some of its attraction for both the venal and the competent. As President Xi Jinping moves to increase the Party’s influence, however, such jobs are attractive to activists who enjoy dictating pay scales to executives, directing bank lending or second-guessing overseas deals.

The net effect of such authoritative zeal has economic costs, too. For example, when China’s head bank regulator Guo Shuqing called for a “regulatory storm” against bad lending practices in 2017, it caused a mini-cash crunch before he was restrained. Private Chinese businesses also are less able to fight back than state-owned banks, even though they generate most of China’s GDP and employment.

As in any giant corporate combination, post-merger integration for Beijing will be paramount. Delivering real value will have to start with some serious cuts.   


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below