China Signals Stability With Surprise Move to Keep PBOC Governor

China Signals Stability With Surprise Move to Keep PBOC Governor

China reappointed several top economic officials in a leadership reshuffle Sunday, giving investors greater continuity as Beijing overhauls financial regulation and grapples with escalating tensions with the US.

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(Bloomberg) — China reappointed several top economic officials in a leadership reshuffle Sunday, giving investors greater continuity as Beijing overhauls financial regulation and grapples with escalating tensions with the US.

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People’s Bank of China Governor Yi Gang, 65, will remain in his post, as will the finance and commerce ministers. He Lifeng, a close ally of President Xi Jinping, was appointed a vice premier, signaling he could replace Liu He as the nation’s top economic official.

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The retention of Yi and others — announced at the National People’s Congress, the annual parliamentary gathering — surprised analysts who were expecting a larger reshuffle. Many predicted officials with international experience, like the PBOC governor, would be replaced by men less familiar to global investors and with stronger personal ties to Xi. 

Keeping some of the existing economic team in place provides continuity as Beijing creates a powerful new financial regulatory body and confronts a more hostile geopolitical environment.

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“The fact that the main technocrats are staying should reassure the market and reduce chances of mistakes during policy implementation,” said Qian Wang, Vanguard Group Inc.’s chief Asia-Pacific economist.

PBOC Governor Yi and Finance Minister Liu Kun were widely expected to step down after reaching the official retirement age for government officials of their rank, and after they exited the Communist Party’s leadership ranks last year. 

However, Yi was appointed on Saturday to a position on a top government advisory body, allowing him to circumvent usual retirement limits — a similar arrangement to his predecessor Zhou Xiaochuan.

The decision to retain Yi “is primarily driven by financial stability concerns,” such as a still uncertain economic recovery following the end of pandemic restrictions, a property market slump and high local government debt, said Houze Song, a fellow at US think tank MacroPolo. 

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“Yi, who is experienced in dealing with financial risks and well known internationally, can help Beijing to muddle through,” he said. Liu, the finance minister, will likely focus on managing the financial strains on local governments, Song added.

The governor’s tenure at the central bank has been marked by a campaign to slow credit growth in order to stabilize debt ratios, increased flexibility of the yuan, and the use of monetary policy to channel funding to favored sectors of the economy, such as renewable energy and small businesses.

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What Bloomberg Economics Says…

The extension of Yi Gang’s term as People’s Bank of China chief provides a critical element of continuity as China makes major personnel changes and restructures key financial and regulatory institutions. Governor Yi – internationally known with a pro-market stance – stands to form a powerful force with He Lifeng, the newly appointed vice premier who has hands-on experience in domestic issues and is likely to take charge of financial-sector oversight. 

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Chang Shu and David Qu

Yi has strong academic credentials, previously teaching economics at Indiana University in the US, as well as extensive international work experience. He is a regular participant in global summits, and held lengthy discussions with US Treasury Secretary Janet Yellen at a Group of 20 summit in November.

Yi will be “a familiar technocratic face to keep things humming,” while Beijing revamps financial regulation, said Christopher Beddor, deputy China research director at Gavekal Dragonomics. “The leadership was clearly debating among several candidates in the run-up to this decision, and opted to go for continuity.” 

Since Yi doesn’t hold a senior position in the Communist Party, it’s possible his reappointment could be an “interim arrangement,” lasting several months or one year, said Hui Feng, co-author of “The Rise of the People’s Bank of China” and a senior lecturer at Griffith University in Australia.

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“Stability is priority, especially considering the dire challenges the bank faces in the short term, namely the ballooning of public debt and great uncertainties in global economic and geopolitical arena,” he added.

In recent years, Yi has shared responsibility for the central bank with Guo Shuqing, who holds the position of Communist Party secretary at the PBOC. Guo is widely expected to retire and his replacement hasn’t yet been announced.

Earlier this week, China’s Premier Li Keqiang was replaced by another close Xi ally Li Qiang. The premier plays an important role in economic policy, co-ordinating different ministries, although the importance of the post has diminished since Xi came to power in 2012. Prior to his appointment on Saturday, Li Qiang had no central government experience.

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China’s economy is gradually recovering as consumer spending picks up, although there are several risks still clouding the outlook: exports continue to shrink, housing sales have yet to fully recover from their slump, and local governments are saddled with high debt.

“This is a pragmatic choice, as the new leaders need professional experts to handle the complicated economic and financial challenges,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “The leaders understand the top priority is to boost confidence. This decision is one step in that direction.”

Other key economic posts

Zheng Shanjie, previously the top official in Anhui province, replaced He Lifeng as head of the nation’s top planning agency, the National Development and Reform Commission. Zheng has been a vocal supporter of industrial policy in favor of hi-tech manufacturing.

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Ding Xuexiang, Xi’s chief of staff, was appointed as a vice premier. Though Ding lacks experience in economic policy, Bloomberg reported earlier that he could lead a Communist Party committee that will oversee the financial sector.

Two other newly-appointed vice premiers, Zhang Guoqing and Liu Guozhong, could also have economic policy roles in the new government. The former, who worked in China’s arms industry for more than a decade, could play a role in industrial policy, while the latter will take responsibility for agriculture, according to an analysis by the US-based Asia Society Policy Institute.

The NPC also approved the appointment of Li Shangfu as defense minister. He is a former aerospace engineer and army general, and was previously sanctioned by the US.

—With assistance from Lin Zhu and Lucille Liu.

(Updates with additional details.)


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