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Pervasive government interference and cronyism in China's financial sector resemble the deficiencies displayed by many other political economies. But in its regulatory efforts, China's government has means at its disposal that are very different. The rise and demise of the Central Financial Work Commission (CFWC) is an outstanding example of the innovative potential and also the limits of Communist Party institutional engineering in China's economy. The creation of the CFWC was a strategy to arrest the breakdown of hierarchies in the financial industry and to restore central policy decisiveness. By means of Party control over senior financial executives and Party-sponsored institutional reorganization, China's political leadership pushed through a centralization of financial market supervision and a series of regulatory innovations starting in 1998. Leninist institutions provided China's politicians with a reserve capacity for responding to perceived organizational crises and for innovating economic regulation. Leninist means of control were conducive to establishing centralized supervision and more uniform regulation. But they failed to introduce market-driven incentive structures for financial executives, did not raise the efficiency in allocating capital and mismatched with the emerging new forms of corporate governance. The new Wen Jiabao government therefore tried a different approach to financial sector reform, redefined the role of Party bodies and dissolved the CWFC. By laying the foundations for national market regulation, this Communist Party body however paved the way for the efforts at dismantling old socialist institutions in China's financial sector that have been under way since 2003.
Sebastian Heilmann (Tue,) studied this question.