The institutional reform plan of the State Council of China was approved at the first meeting of the 14th National People's Congress on March 10th. The focus of the State Council's institutional reform is to strengthen the optimization and adjustment of institutional responsibilities in key areas such as science and technology, financial regulation, data management, rural revitalization, intellectual property rights, and aging work.

What impact will the institutional reform of the State Council have on the capital market? What investment opportunities will arise in various fields?

What are the key features of the State Council's institutional reform plan? What impact will it have on the capital market?

This plan highlights two major characteristics, namely, "overall planning and coordination" and "optimization and efficiency", aimed at transforming government functions and optimizing the allocation of functions. The reformed institutional arrangement of the State Council will provide a stronger impetus for the development of Chinese path to modernization.

For the capital market, on the one hand, improving the quality and efficiency of financial regulation can help prevent systemic financial risks, address issues such as cross regulation and regulatory gaps, optimize resource allocation, and gradually establish a regulatory framework that conforms to the innovative development characteristics of modern financial mixed operation; On the other hand, the reform will enhance the scientificity and effectiveness of valuation and pricing in the capital market, gradually improve the valuation and pricing logic suitable for different types of enterprises and the valuation system with Chinese characteristics, and help the capital market better empower the real economy.

The positioning and responsibilities of the two departments, science and technology and finance, have become clearer: in terms of science and technology, we have "reduced the burden" and upgraded science and technology institutions, significantly transferred the specific management responsibilities of the Ministry of Science and Technology, and the Ministry of Science and Technology assumes the office responsibilities of the newly established Central Science and Technology Commission of the Party Central Committee; In the field of finance, we will reform the financial sector with the focus on "paying attention to financial regulation, paying attention to direct financing, and improving policy transmission.".

This reform reshapes the financial regulatory system, collecting unified regulatory powers and responsibilities, paying more attention to direct financing, and also paying more attention to financial support for the real economy, especially technology. The importance of the capital market has undoubtedly increased.

The most prominent feature is to strengthen the regulatory responsibilities of the capital market. In the current situation of increasing uncertainty in the financial system, further strengthening the construction of regulatory and risk prevention capabilities can promote the stable operation of China's capital market and give full play to the original intention of financial services to the real economy.

| What areas of investment opportunities will the institutional reform of the State Council bring?

It is recommended to focus on investment opportunities related to the technology industry and the digital economy. In the science and technology industry, strengthening investment in basic research is the main direction. In addition, the focus is on the safety of the industrial chain, with the core being autonomous and controllable production links and domestic substitution. Hardware, i.e. semiconductor equipment and core components, and software, i.e. Xinchuang, will continue to support specialized, specialized, and innovative "small giants" enterprises.

In the digital economy, the follow-up focus will be on industrial internet, industrial internet, 5G commercial, artificial intelligence, data center, digital trade, and the release of data element value.

In addition, "Both development and security" should be the main line of industrial policy this year. In addition to vigorously developing the digital economy and promoting technological self-reliance, we should also continue to make arrangements on energy security, food security (already covered by the Central Government's "No. 1" document in 2023), military security, and other related investment opportunities are also worth looking forward to.

The concept of scientific and technological innovation has received renewed attention, and the new Ministry of Science and Technology will focus on basic research and applied basic research. In the future, it is still necessary to pay attention to the fields related to technological innovation in the "Party and State Institutional Reform Plan" in mid to late March, such as instrument manufacturing related to scientific research and development.

| What signals have been released by the optimization and adjustment of the financial regulatory system?

In the field of financial supervision, major reform measures such as the establishment of the National Financial Supervision and Administration, deepening the reform of the local financial supervision system, and promoting the reform of PBC branches have continued the thinking and trend of "big supervision" in institutional reform, with four prominent highlights:

First, improve the efficiency of financial supervision. The unified responsibility of the General Administration of Financial Supervision and Regulation for the supervision of the financial industry other than the securities industry can effectively avoid multiple regulatory issues or regulatory deficiencies between the central and local authorities, and multiple departments. The scope of supervision covers the entire financial field, and the division of labor is more reasonable, which will greatly improve the efficiency of financial supervision.

The second is to enhance the authority of financial supervision. Measures such as establishing the State Financial Supervision and Administration and clarifying its responsibilities, assigning the review of corporate bond issuance to the China Securities Regulatory Commission, and clarifying the local financial supervision system dominated by the local agencies of the central financial management department to optimize local financial supervision capacity and efficiency.

Third, highlight the professionalism of financial supervision. For example, assigning the investor protection functions of the People's Bank of China (PBOC) and the Securities Regulatory Commission (CSRC) to the State Administration of Financial Supervision and Regulation, as well as allowing financial regulatory agencies established by local governments to be exclusively responsible for supervision, without attaching the brand of the Financial Office or the Financial Work Bureau, will help improve the professional level of financial supervision.

The fourth is to improve the central bank system in line with national conditions. This reform of the People's Bank of China's branches has been carried out in combination with the basic national conditions. The reform measures such as canceling regional branches, restoring the establishment of provincial branches, and canceling county-level branches have better achieved the matching with China's administrative divisions, strengthened coordination and cooperation with local governments, and helped to enhance the conductivity of monetary policy, better support the function of financial services to the real economy, and further improve the financial regulatory system with Chinese characteristics.

What is the impact of the measures required by the digital economy?

The establishment of the National Data Bureau and the organic integration and integration of functions scattered across multiple departments are conducive to strengthening top-level design, strengthening the management, development, and utilization of data by specialized departments, and promoting the construction of digital China and the development of the digital economy.

The establishment of the National Data Bureau is conducive to strengthening the construction of data related systems, opening up data links, integrating data resources, and further solving the problem of "isolated islands" of data.

This institutional reform of the State Council involves departments such as science and technology, financial supervision, intellectual property, and agriculture and rural areas. These departments are all in charge of areas where the current economic pattern is undergoing rapid development and change, especially high-end, intelligent, green, and intensive trends.

This institutional reform will help relevant departments better adapt to the changing trends in the real economy, optimize the governance system structure, enhance the operational efficiency of governance institutions, and enhance long-term governance capabilities, which will have a significant impact on economic and social development.