The end of the Tenth National People's Congress saw the start of a new round of government restructuring in China. The changes involve the creation of several ministerial-level bodies, including the Ministry of Commerce (MOC), State Asset Management Commission (SAMC), State Development and Reform Commission (SDRC) and China Banking Regulatory Commission (CBRC). The changes have been a cause of concern to the Hong Kong business community. This article analyses changes to the role that the Chinese Government plays in these departments and their possible impact on China's market-oriented reforms.

The former Ministry of Foreign Trade and Economic Cooperation (MOFTEC), and the State Economic and Trade Commission (SETC) have been dismantled and their work has been incorporated into the new Ministry of Commerce (MOC). Many countries worldwide unify the management of internal and foreign trade under a single department, such as Japan's Ministry of Economy, Trade and Industry and the U.S. Department of Commerce.

MOC's establishment aims to integrate China's domestic and foreign trade, and fulfil China's WTO commitments, which include granting all Mainland enterprises trading rights by the end of 2004. It also removes any previously overlapping functions among government agencies and is more in-line with international practices.

MOFTEC used to manage affairs related to foreign investments and was a key office for foreign businesses. Since the old ministry was responsible for formulating foreign investment policies and approving major projects, foreign investors are naturally concerned about how MOC will operate.

The State Council has appointed Lu Fuyuan as the new minister to drive MOC, and its main responsibilities are: perfecting a market system, monitoring commodities demand and supply, organising international economic co-operation and co-ordinating matters relating to anti-dumping and anti-subsidies.

In this writer's opinion, formulating foreign investment policies will be a key function of MOC. Two of its most pressing issues are, firstly, the export tax refund. Some Mainland cities have not yet paid back foreign businesses for the export tax paid for 2001, which is causing cash flow problems for many of them. Its second pressing issue is it needs to draw up detailed policy guidelines for foreign investors' engaging in merger and acquisition activities in China.

The former State Development Planning Commission has been reorganised into the State Development and Reform Commission (SDRC), which is headed by Ma Kai from the former Structural Reform Office. The role of the SDRC remains relatively unchanged, although some of its work has been incorporated into the MOC.

With energy issues growing in importance in China, a new Energy Bureau has been set up. As defined by the State Council, the SDPC is responsible for the comprehensive study and formulation of policies on economic and social development, and for guiding reform of the macro economic system. Its "planning" role has been diluted as it has relaxed its grip on commodity prices, which further indicates that China is moving away from a planned economy.

Li Rongrong, former minister of the State Economic and Trade Commission, has been appointed the leader of the newly-created State Asset Management Commission (SAMC). The responsibilities of this new body are: representing China to perform its duties as an investor as authorised by the State Council, supervising state-owned assets, increasing the value of such assets and strengthening state-owned operations.

The establishment of SAMC is an important step towards reforming state-owned enterprises (SOEs). Previously, SOEs were owned by the "state," which is an abstract concept. Now, they have a specific "boss" -- SAMC. This initiative helps separate politics from business. With their goodwill and long history, SOEs remain the preferred partners for many foreign investors in China. But since the Central Government did not distinguish clearly the responsibilities and rights of SOEs in the past, foreign investors always suffered when disputes arose.

The problem of exactly who owns SOEs' assets has existed for several decades. It is difficult to straighten out the intricate relationships between enterprises, local governments and the Central Government over the short term. Consequently, it will take some time for SAMC to become the SOEs' real "boss."

Following the establishment of the China Security Regulatory Commission and the China Insurance Regulatory Commission, the long-awaited China Banking Regulatory Commission (CBRC) has been set up. The People's Bank of China's role in supervising and regulating banks and other financial institutions will be separated and integrated with the related functions of the Central Financial Working Commission. Liu Mingkang, from the People's Bank of China, has been appointed founding chairman of the CBRC.

Most countries that have experienced financial crises have separated their monetary policies from financial supervision. To cope with the Asian Financial Crisis, China set up the Central Financial Committee in 1998 to co-ordinate the nation's finances and supervise all financial sectors. The move was in-line with the rising trend of foreign financial institutions entering China, especially after China's WTO accession, which required China separate its monetary policies from the supervision of its banks.

However, under Chinese Banking Law, the supervision of banks and other financial institutions falls under the responsibility of the People's Bank of China. As the above changes require amendments to the law to be made, the CBRC is the last body to start operations under the restructuring plan.

China's institutional reforms clearly show that the country is taking positive steps towards becoming a market economy. The State Council has, in general, followed the example of free market economies to restructure and redefine the function of its government agencies -- measures which will boost foreign investors' confidence in China.

Although China, as a developing country, cannot expect its economy to become as open and free as Hong Kong's, its reforms and the opening up of various sectors are expected to enhance Hong Kong's role as China's most international city.