China elects new economic team as President Xi kicks off 2nd term
Beijing cracks down on riskier financing Liu He to be vice premier, Yi Gang to be PBOC chief
BEIJING: China elevated a key confidante of President Xi Jinping to one of the top positions in government yesterday as Beijing cracks down on riskier financing and a debt to reduce systemic risks to the world’s second-largest economy. The election of Liu He by parliament to be a vice premier also comes as the United States presses China to cut its trade surplus by $100 billion. Harvard-educated Liu, 66, was the most prominent envoy to visit Washington recently in a bid to prevent the outbreak of a trade war. While most of the personnel changes on the economic team were widely anticipated, the choice of Yi Gang to take over as the new head of the People’s Bank of China (PBOC) was unexpected.
Yi is a vice governor of PBOC and a protege of outgoing chief Zhou Xiaochuan. His appointment is seen as pointing to continuity in monetary policy even as one of the world’s biggest central banks is gaining considerable new regulatory power. The head of a newly merged banking and insurance regulator is expected to be announced yesterday. Reform-minded Guo Shuqing, 61, the current chair of the China Banking Regulatory Commission, is viewed as the top candidate to play that role. The chief of a powerful new competition and food safety regulator will also be unveiled.
As Xi begins his second five-year term as president, Beijing is streamlining regulators and ministries to cut inefficiencies while expanding the remit of others such as the central bank to boost their policymaking powers. “China’s ministries are giant, nationwide siloes and fiefdoms that never talk to one another. Hence, in order to accomplish anything major, the command must come from the top down; only they can get ministries to work together,” Cliff Tan, east Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ, said in a note. “Such a setup nearly guarantees the continuation of power that is never devolved, otherwise nothing would get done.”
Liu has a deep understanding of the country’s economic issues, and was elected last October into the 25-member Politburo, the second-highest tier in Beijing’s political power structure after the seven-member Politburo Standing Committee. Liu won a top Chinese economics study award in 2015 for his research on the global financial crisis, and is widely seen as masterminding Xi’s supplyside reforms which are cutting excess factory capacity and pivoting the economy away from lowvalue industries. Liu, who speaks fluent English, gained a master’s degree in public administration at Harvard’s Kennedy School of Government in 1995. He had been the head of the General Office of the ruling Communist Party’s Central Leading Group for Financial and Economic Affairs and a vice minister of the National Development and Reform Commission (NDRC) - China’s top economic planner.
Zhou’s protege US-educated Yi Gang, 60, has been vice PBOC governor since 2008. He is seen as instrumental in steering monetary and currency policy, including the landmark devaluation of the yuan in 2015 and more recently a tightening in capital controls. The PBOC and other regulators are trying to rein in risks from an increasingly complex financial system and a rapid build-up in debt without jolting markets or hurting economic growth. “The main task right now is to implement prudent monetary policy, push forward financial sector reform and opening up, and keep the financial sector stable,” Yi told reporters on the sidelines of yesterday’s parliament session at the Great Hall of the People.
But Yi is not regarded as a heavyweight like his boss Zhou, and he may play a supportive role with Liu overseeing the economy and finance sector on the whole, some economists say. “Frankly speaking, (Yi’s nomination is) a bit unexpected as he holds a relatively low political ranking as the alternative member of CPC Central Committee,” said Tommy Xie, China economist at OCBC Bank in Singapore.
The Central Committee is the largest of the party’s elite decision-making bodies, and is made up of 204 full members and about 170 alternate members. “In terms of implication, we see policy continuation as Yi will support Liu He to drive economic reform. Both are the main driver to China’s reform in the past few years,” Xie said. Yi, one of the highest-ranking “sea turtles” - a colloquialism for Chinese returning from overseas - has a PhD in economics from the University of Illinois. He was also the head of the State Administration of Foreign Exchange (SAFE) from 2009 to 2016.
With Yi’s background and his reputation of being proreform, his nomination would be good news for foreign investors, Xie also said. Zhou, 70, who is China’s longestrunning central bank head, having taken the job in 2002, is expected to announce his retirement soon. Separately, Liu Kun, head of the budget office of parliament, was elected to be the new finance minister, replacing Xiao Jie. Liu was formerly a vice finance minister. Zhong Shan was re-elected as the commerce minister. He Lifeng was also re-elected as the head of NDRC.