A very Chinese reshuffle
The forces of market-oriented economic reform in China seemed to take a hit on Monday when it was announced that the tough-talking finance minister Lou Jiwei was stepping down from his post. Some Western media reports suggested this was further evidence of an authoritarian President Xi Jinping tightening his grip on power and eliminating officials who disagree with his statist, anti-market policies. This is almost certainly an over-simplification, if not an outright distortion. The prospects for China’s reform agenda remain cloudy, but Lou’s departure does not really darken the skies.
Lou was just one of three ministers who left their positions yesterday (along with the ministers of Civil Affairs and State Security); so far this year a total of seven ministers have been replaced. Of these seven Lou was the oldest: he turns 66 in two months and is thus past the mandatory retirement age for government ministers. In recent decades retirement ages for government ministers have been strictly enforced. The sole exception is PBOC governor Zhou Xiaochuan, who a few years ago was permitted to stay on beyond the retirement age of 65 via the stratagem of being awarded a post at a high-level state advisory body, which gave him special status exempt from mandatory retirement.
The simplest explanation, therefore, is that Lou is moving on in accord with well-established retirement rules, and did it at a fairly normal time, after a plenary meeting of the Party, when significant personnel changes are often ratified. (The Sixth Plenum of the current Party congress term concluded a couple of weeks ago.) Moreover, he may not leave the world of administration altogether: it is rumored he will take over the National Social Security Fund, a quasi-government agency that has twice in the recent past provided a perch for retired finance ministers. It’s true that a senior Party official recently said in public that retirement ages are in practice flexible and not mandatory, but this referred specifically to Party, not government, positions.
Lou has always been far more popular with the Western media than within the Chinese system. His views lie on the extreme free-market end of the spectrum in Chinese officialdom. And he has never been shy about publicly denouncing policies with which he disagrees, such as the 2008 labor contract law which he believed had made China’s labor market too rigid. His unabashed embrace of Westernstyle free marketeering, and his willingness to speak his mind distinguished him from the dreary monotony of Chinese leaders. He gave a great interview and made great copy.
But there have always been plenty of people inside the broader Chinese “reform” tent who think Lou goes too far in advocating free-market approaches, without taking sufficient account of the negative impact on less advantaged groups in society. And his loose-cannon tendency, viewed as an asset by the foreign media, was a severe liability within a Chinese system where message control is all-important. The contrast with the PBOC’s Zhou is striking: Zhou is a silky-smooth politician whose public utterances never obviously deviate from the main line of government policy. An exception to the retirement age could be crafted for him; but Lou had antagonized too many people ever to get that deal.
Finally, it’s worth nothing that while Lou swept into office three years ago with bold, and generally sensible, ideas about how to reform China’s fiscal system, his record of achievement has been mixed at best. Efforts to restructure local government debts were widely resisted on the grounds that they impeded growth, and Lou’s restructuring goal has been sidelined in favor of simply expanding localities’ borrowing authority. Progress on revamping the tax system have also been slow. So it’s not as if Lou’s departure marks the untimely end of a superstar reformer who was achieving spectacular results.
His successor as finance minister, Xiao Jie, is a seasoned finance official with plenty of fiscal expertise, and a reputation for openmindedness. He comes most recently from the State Council, where he held a senior position in the secretariat and helped lead the most recent economic census. Little evidence supports the idea that his is a retrograde, anti-reformist appointment. It is true that the progress of economic restructuring remains a concern, and that economic policy under Xi has undergone a notably statist drift in the last year or two. The resolution of doubts over economic policy direction will hinge on highlevel leadership changes at the Party’s 19th Congress a year hence, not on routine cabinet shuffles today. Lou Jiwei’s passage may be lamented by the foreign media, but the timely retirement of an entertaining yet only moderately effective minister sends us no useful signal about the prospects of the reform agenda, one way or another.