China's New Power Structure Tightens Grip on Data, Tech, Finance

· Organizations to oversee China's financial sector; a CCP-led commission charged with ensuring technological self-reliance; a national data bureau to promote the country's digital economy; an agency to engage with the general public; and another agency to administer Hong Kong and Macao.

· Squeeze from U.S. restrictions on the supply of advanced computer chips to China. To counter this, CCP will lead a central science and technology commission.

· Beijing has stepped up oversight of data collected by tech companies and it has introduced laws on data security and personal information protection. Now it believes it is sitting on an economic gold mine.

· The digital economy is a bright spot for China. The sector's growth rate far exceeds that of the gross domestic product.

· In 2021, China's digital economy reached 45.5 trillion yuan ($6.6 trillion), double the size in 2016, according to the China Academy of Information and Communications Technology, a government research institute.

· A new National Financial Regulatory Administration will take over some responsibilities from the banking and insurance regulator, portending stricter oversight.

· A central financial commission and a central financial work committee, both of which will be responsible for strengthening the roles of ideology

State and CCP overhaul aims to counter U.S., boost economy, curb dissent

If each gigabyte in a zettabyte were a brick, 1 zettabyte (ZB) would be enough to build 258 Great Walls of China -- each with nearly 3.9 billion bricks. That is how an analyst at U.S. networking company Cisco once described the staggering amount of digital data the world is accumulating.

China, with around 1 billion internet users and a vast surveillance network, is fast becoming the biggest part of that "datasphere." One projection by Seagate a few years ago estimated the nation's annual data generation would reach 48.6 ZB by 2025, or nearly 28% of the global total.

The Chinese Communist Party government and President Xi Jinping are now moving to tighten their grip on that data and capitalize on it economically as part of an overhaul of state and party institutions that is likely to change the way China operates for the foreseeable future.

Beijing unveiled its plans for stronger control over not only data but also technology development, finance and society as its annual rubber-stamp parliament session finished last week. Taken together, the reforms appear designed to further concentrate power in Xi's hands as he begins his third term as president.

Experts say that many of the moves are an extension of the power consolidation seen since Xi took office in 2012, and that they signal Beijing's priorities in the face of increasing pressure from U.S. export restrictions, risks to financial stability and slowing economic growth.

"For Xi and the Communist Party, this actually is existential," Trey McArver, co-founder of consultancy Trivium China, said of the changes.

For decades, China's bloated state institutions had undergone restructuring every five years alongside changes in the government to bring them up to speed with the modern state and economy. But under Xi, the reforms have typically granted the CCP more muscle.

Building upon an earlier shake-up of party and state agencies in 2018, the latest restructuring includes a raft of new entities, such as organizations to oversee China's financial sector; a CCP-led commission charged with ensuring technological self-reliance; a national data bureau to promote the country's digital economy; an agency to engage with the general public; and another agency to administer Hong Kong and Macao.

Xi has repeatedly called for reducing dependence on foreign tech, clearly feeling the squeeze from U.S. restrictions on the supply of advanced computer chips to China. To counter this, the CCP will lead a central science and technology commission.

One expert likened the initiative to China's quest for nuclear weapons, which made it the first Asian nation to successfully test an atomic bomb in 1964.

"The formation of the central science and technology commission means Xi is using the same model as Mao [Zedong] when China possessed nuclear capabilities in the 1960s," said Deng Yuwen, former editor of the CCP Central Party School's journal Study Times. The main idea, he said, is "mobilizing nationwide resources to achieve breakthroughs."

Meanwhile, the existing Science and Technology Ministry, which has been overseeing policy and managing funding, will no longer evaluate and shepherd specific projects after the restructuring. In addition, some of the ministry's divisions and duties will be transferred to other government agencies.

Deng, who now lives in the U.S., explained why this matters.

"From Xi's perspective, if he doesn't consolidate power, it will be difficult for him to accelerate projects that he prioritizes," Deng said. "For example, if the [task of] tech restructuring only stays with the Science and Technology Ministry, the ministry will have huge difficulties in getting support from other government agencies."

The growing trove of zettabytes is seen as another means to gain a global edge.

In recent years, Beijing has stepped up oversight of data collected by tech companies and it has introduced laws on data security and personal information protection. Now it believes it is sitting on an economic gold mine.

"In today's society, digital resources and the digital economy play a fundamental role in economic and social development, and are of great significance for ... building new advantages in the competition between nations," said State Councilor Xiao Jie during the National People's Congress, adding that the country must strengthen its management and utilization of data.

There is little doubt that the digital economy is a bright spot for China. The sector's growth rate far exceeds that of the gross domestic product.

In 2021, China's digital economy reached 45.5 trillion yuan ($6.6 trillion), double the size in 2016, according to the China Academy of Information and Communications Technology, a government research institute.

It will be up to the new national data bureau to capitalize on this by coordinating the sharing and development of the country's ever-swelling stockpile of digital information. And it is a critical job, as China looks for a new growth engine to compensate for slower overall investment, consumption and exports.

Questions remain over how it will work. Before the central bureau was proposed, China saw the creation of dozens of so-called "big data bureaus" or "big data management centers" at the local government level. It is not clear how they will be merged or managed once the new entity is formed. Authorities did say that some staff from the top online watchdog, the Cyberspace Administration of China, and the key economic planner, the National Development and Reform Commission, will be shifted to the bureau.

Deng, the former Study Times editor, said the national data bureau is more of an economic project than a security one. "That's why the new bureau is under the National Development and Reform Commission rather than the Cyberspace Administration," he said.

Another economic project that has caught investors' attention is the centralization of China's financial regulation. A new National Financial Regulatory Administration will take over some responsibilities from the banking and insurance regulator, portending stricter oversight. Some observers view the move as a way to streamline the bureaucracy and reduce financial risks at the local government level.

Two new party bodies will also keep an eye on the financial sector -- a central financial commission and a central financial work committee, both of which will be responsible for strengthening the roles of ideology and the party in China's overall financial system.

But many of the changes are clearly security-minded -- whether it is keeping Hong Kong and Macao under the party's thumb or checking dissent on the mainland.

Beijing's top office that oversees Hong Kong will be restructured into a new body that reports directly to the Communist Party leadership. This marks another phase in the political transformation the former British colony has experienced since the protests of 2019 and the introduction of a sweeping national security law in mid-2020.

The new entity, referred to as the Hong Kong and Macao work office of the Communist Party Central Committee, will give the CCP more direct control over the cities' affairs, as opposed to the executive State Council. The reform announcement stressed the committee's mission to "safeguard national security, guarantee people's livelihoods and well-being, as well as support Hong Kong and Macao to integrate into the national development plan."

This is where yet another new institution, the mysterious social work department of the Communist Party's Central Committee, may come in. The new body will be responsible for dealing with public petitions, as well as guiding industry associations and non-state-owned enterprises in "party building" work -- both efforts to strengthen the ideology of party members through various forms of education.

"The financial overhaul may help to reduce the financial risks, but whether the CCP can reach its goal of achieving technology self-reliance via power consolidation, that's another matter."