If China hopes to calm the turmoil that has shaken financial markets at home and around the world, and to steer its economy to a soft landing, it must reform its regulatory policymaking regime.

The government itself is a significant source of instability and uncertainty. China needs more professional policymaking to restore confidence, which is possible only if Beijing stops intervening in markets arbitrarily and allows regulators independent oversight.

By now almost everyone is familiar with two agencies: the seemingly careless China Securities Regulatory Commission and the uncommunicative People’s Bank of China . During China’s dramatic stock market crash in June and July last year, the CSRC was busy changing rules on the fly: limiting stock index futures trading, banning short selling, cutting margin ratios, locking up the holdings of large shareholders and then investigating for potential legal actions short-sellers and those selling off big blocks. These hasty rule changes, imposed for the immediate convenience, created much uncertainty for investors.

On January 4, the first working day after the New Year break, the CSRC introduced the two-step circuit breakers — to pause trading when stock indices were down 5 per cent and to close for the day if the fall reached 7 per cent. Unfortunately, the circuit breakers were needed right away as the market plunged within a few hours of opening. They were triggered again on January 7, this time with trading closed just 15 minutes after opening. That very evening, just four days after introducing the mechanism, the CSRC killed it.

Since the PBoC seldom communicates with the market, its actions are often misunderstood. For example, in August last year it reformed the mechanism for setting the renminbi exchange rate. Whereas the PBoC would previously give a morning fix with no link to the market rate, it now based the morning fix on the previous day’s closing rate on the onshore renminbi market.

It was a good reform, intended to signal that Beijing was still pushing market-orientated reforms despite arbitrary interventions in the stock market. However, the outside world interpreted that step as China intending to devalue the renminbi because of worse-than-expected troubles in the economy, resulting in heavy selling of the renminbi and risky assets across global markets.

In December, the PBoC introduced a renminbi index based on a basket of currencies but left the market to guess at its intentions. After the New Year, the guessing game intensified as the PBoC seemed to allow the renminbi to depreciate for days, leading to further confusion and intensified selling pressure across markets.

So does the Chinese government lack competent people, as many have concluded? The answer is no. For those of us who have dealt extensively with these organisations, it is no secret that the PBoC and CSRC are among the most competent agencies in Beijing. From top to bottom, they are staffed by well educated (often western educated) highly experienced professionals.

The problem lies instead in these policymaking bodies’ lack of independence. In the US, the Federal Reserve has full authority to decide on monetary and banking policies, and the Securities and Exchange Commission has autonomy on securities market matters.

By contrast the PBoC and CSRC cannot announce major, or sometimes even minor, policy decisions without the approval of the State Council, the state’s highest administrative body.

Within the State Council, it is the premier and four vice-premiers who ultimately decide on all proposals submitted by the PBoC, CSRC and other agencies. While they are all exceptionally gifted and well educated, they should not be expected to be experts on every policy matter.

In the past, this mattered less. China lacked even a commercial banking sector, to say nothing of sophisticated capital and currency markets. For agriculture and traditional industries, the absence of independent economic policy agencies was probably manageable.

In the past two decades, however, the economy has become much more complex: many banks, big and small; markets in stocks, bonds, futures, options and other derivatives, and mutual funds, hedge funds, trusts and insurance industries, all developing rapidly. It is no longer realistic to expect one or two individuals to know it all and to be able to judge every policy matter.

To restore confidence and minimise turmoil, China needs to reform and ensure independence for the PBoC, CSRC and other policy bodies. Let experienced professionals take charge of the financial markets.