Imag­in­ing China with­out top re­former

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If ever there were an ex­cuse for China to re­think re­tire­men­t­age lim­its, it’s Zhou Xiaochuan. Si­nol­o­gists are ob­sess­ing over when the soon-to-be-70year-old cen­tral banker will re­treat from pub­lic life. Ques­tions abound about China’s tra­jec­tory with­out its most force­ful and re­spected re­former hold­ing the mon­e­tary reins and prod­ding the Com­mu­nist Party to raise China’s game. And in­vestors are right­fully wor­ried.

The last time the world economy saw this level of pol­i­cy­maker drama was around Alan Greenspan’s exit in 2006. While Wall Street’s crash in 2008 has since marred his legacy, Greenspan’s de­par­ture from the Fed­eral Re­serve pan­icked in­vestors. Dur­ing his 18 years as Fed chair­man, his cult of per­son­al­ity had pres­i­dents and law­mak­ers de­fer­ring to his every whim. Zhou, too, has de­vel­oped a mae­stro-like glow in his 15 years as Peo­ple’s Bank of China (PBOC) gov­er­nor. Name any ma­jor up­grade since 2002, and odds are it bears Zhou’s fin­ger­prints.

Zhou, af­ter all, has been Bei­jing’s eco­nomic face across three dif­fer­ent pres­i­den­cies and three Fed chair­man­ships. The long­est-serv­ing mon­e­tary leader among the top 20 economies amassed some se­ri­ous street cred in the rar­efied cir­cles of Chi­nese de­ci­sion mak­ing.

Zhou ended the dol­lar peg, mod­ern­ized mon­e­tary-pol­icy tools, scrapped caps on de­posit rates and en­gi­neered the yuan’s el­e­va­tion to­wards re­serve-cur­rency sta­tus. He steered Asia’s big­gest economy through myr­iad crises—2008’s Lehman Broth­ers shock, the 2013 ta­per tantrum and Shang­hai’s 2015 stock crash. Most im­por­tantly, Zhou art­fully bal­anced keep­ing China’s du­el­ing as­set bub­bles from burst­ing by mod­ern­iz­ing its foun­da­tions.

It’s a skill he learned from men­tor Zhu Rongji. The re­forms the long-re­tired Zhu, who served as premier from 1998 to 2003, pulled off make Pres­i­dent Xi Jin­ping’s ef­forts to­day look fee­ble. The one-time Shang­hai mayor shook up state-owned en­ter­prises, in­clud­ing China’s four big­gest banks, with an au­dac­ity we haven’t seen since. That meant elim­i­nat­ing 40 mil­lion jobs and im­pos­ing greater ac­count­abil­ity. A cagy ne­go­tia­tor, Zhu made sure China came out on top as it en­tered the World Trade Or­ga­ni­za­tion (WTO) in 2001—some­thing about which US Pres­i­dent Don­ald Trump has lots to say 16 years later.

WTO mem­ber­ship was a Tro­jan horse of sorts, a back-door way to shock a change-ad­verse sys­tem into in­ter­na­tion­al­iz­ing. In 2016, Zhou bor­rowed a page from that play­book when he pressed the In­ter­na­tional Mon­e­tary Fund (IMF) to add the yuan into its top-five cur­rency ma­trix. Now inside IMF’S spe­cial-draw­ing rights pro­gramme, Bei­jing will lose face if it fails to lib­er­al­ize the cap­i­tal ac­count, in­crease trans­parency, of­fer de­tails on gold hold­ings and curb shadow bank­ing. Credit rat­ing com­pa­nies might reg­is­ter their dis­ap­point­ment. So might de­ci­sion mak­ers who run MSCI or other bench­mark in­dexes.

No one, gen­er­ally, is ir­re­place­able. Amer­i­cans learned that af­ter Greenspan’s de­par­ture. In­di­ans learned it in 2008 when Y.V. Reddy left the cen­tral bank. And Aus­tralians learned it when Glenn Stevens stepped down one year ago. But Zhou comes pretty close.

The good news is that Zhou is pulling off another Zhu Rongji move: guid­ing his dis­ci­ples into key po­si­tions to en­sure con­ti­nu­ity. Among life-minded re­form­ers pro­moted since 2015: Li Bo as di­rec­tor gen­eral of the cen­tral bank’s mon­e­tary pol­icy department; Zhang Tao as China’s voice at the IMF; Xuan Chang­neng to the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion; Zhang Xin and Lu Lei to se­nior roles at the State Ad­min­is­tra­tion of For­eign Ex­change, which man­ages Bei­jing’s $3 tril­lion of cur­rency re­serves.

One rea­son for con­cern, though, is PBOC’S in­de­pen­dence. Granted, the idea of cen­tral-bank au­ton­omy be­came muddy in this era of quan­ti­ta­tive eas­ing and po­lit­i­cal paral­y­sis. But Zhou’s endgame has al­ways been a more con­ven­tional church-and-state sep­a­ra­tion from party med­dling. He had the grav­i­tas to move PBOC in that di­rec­tion. Will his suc­ces­sor?

Names floated around in­clude Guo Shuqing, who’s chair­man of the Bank­ing Reg­u­la­tory Com­mis­sion and a po­lit­i­cal heavy­weight. Yi Gang, one of Zhou’s deputies, gets men­tioned, as does Jiang Chao­liang, party sec­re­tary in Hubei prov­ince. Ex­pe­ri­ence and con­nec­tions, though, don’t en­sure the next PBOC leader will have a strong vi­sion for China’s fu­ture or the gump­tion to guide it there. Might Xi re­ward one of his cronies with a plum pol­icy job? The last thing un­bal­anced, highly in­debted China needs is a mon­e­tary lap­dog blow­ing new bub­bles and en­abling older ones.

It’s set­back enough that Zhou’s re­form push re­cently took a back seat to sta­bil­ity. Waves of cap­i­tal leav­ing the main­land prompted PBOC to tighten for­eign-ex­change con­trols, the op­po­site of what Zhou wants to be do­ing. Author­i­ties backed off ear­lier ef­forts to curb shadow-bank­ing ex­cesses. Bei­jing also is more con­cerned about prop­ping up stock val­ues than tight­en­ing cor­po­rate gover­nance prac­tices.

But Zhou sur­ren­der­ing his cen­tral bank ID card will be a risk-on mo­ment for in­vestors. He hasn’t said when ex­actly, but with his 70th birth­day com­ing up in Jan­uary, the an­nounce­ment is im­mi­nent. It’s a tes­ta­ment to Zhou’s suc­cess and skill that this even­tu­al­ity has mar­kets so anx­ious. Those losing sleep sure wish Bei­jing would raise the re­tire­ment age a bit, and fast. 75, any­one?

Wil­liam Pe­sek, based in Tokyo, is a for­mer colum­nist for Bar­ron’s and Bloomberg and au­thor of Ja­paniza­tion: What the World Can Learn from Ja­pan’s Lost Decades.

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