The post is not new, but the man who has held the job for the past five years, Ma Kai, is a longtime central planner who appeared to spend most of his time on issues involving state-owned enterprises.
In financial policy, “one thing that is very clear is that Liu He will play a more important role than Ma Kai” did, said Jianguang Shen, an economist in the Hong Kong office of Mizuho Securities, a Japanese investment bank.
The rest of the world will be watching what happens. China’s continued use of economic planning and ongoing support for state-owned companies has prompted pushback by global leaders. President Trump’s new tariffs on steel and aluminum are aimed, in part, at China’s own protectionist policies.
David Malpass, the Treasury Department’s under secretary for international affairs, said before the Group of 20 finance ministers gathering in Argentina on Sunday that China had reversed its path toward more open markets, in favor of greater subsidies of its industries and more shoring-up of state-owned enterprises.
“China’s gone in a different direction, really, from the rest of the world,” Mr. Malpass said.
He also noted it was “worrisome” that President Xi had done away with term limits, leaving him free to rule indefinitely, and that the United States’ longstanding economic discussions with China had stalled.
As Mr. Xi has sought to extend it leadership, he has brought more centralized control to the country’s main policy levers.
The government has just approved a plan to combine China’s banking and insurance regulators, as a way to bolster oversight. The agencies will relinquish some policymaking responsibilities to China’s central bank.
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Last summer, Mr. Xi created a Financial Stability and Development Committee to coordinate all financial regulation, and Mr. Liu is widely expected to lead it. The new committee, while small, has the power to resolve differences among the People’s Bank of China and the agencies that oversee the regulation of the banking, insurance and securities industries.
In 2013, the president also made Mr. Liu the director of the Communist Party’s powerful Leading Group on Financial and Economic Affairs. A few months later, Mr. Liu named Mr. Yi as one of his deputies at the group, the state-run news media reported at the time.
The rapid rise of both men once again show the president’s willingness to dispense with the conventions of China’s bureaucracy when he wants to promote someone he may perceive as especially competent, especially loyal or both. Mr. Liu was promoted several rungs overnight to the Politburo last October despite having been only the deputy director of a ministry, the National Development and Reform Commission.
Similarly, Mr. Yi has not followed the traditional path to a top financial position, like a stint running a big state-owned bank or overseeing one of the lesser regulators. (Mr. Zhou did both before running the central bank.)
Mr. Yi worked his way up the ladder at the People’s Bank of China, where he has been since 1997. The current central bank chief, who is retiring, has lately given considerable visibility to Mr. Yi by sending him to international meetings and encouraging him to answer questions at important news conferences.
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Mr. Yi is also among the rare officials to reach the top ranks after spending considerable time overseas. He earned a doctorate in economics at the University of Illinois at Urbana-Champaign and then taught economics at Indiana University in Indianapolis for eight years. Mr. Liu studied at Seton Hall University and Harvard.
The job of running the People’s Bank of China has become much more technical in the past several years as it has shifted away from simply mandating the interest rates that banks can charge for loans and pay for deposits. Instead, the central bank increasingly relies on open-market trading in bonds and other securities to influence interest rates, much as the Federal Reserve does in the United States.
Mr. Yi has an extensive academic background in monetary policy and has overseen much of the trading in recent years. But he will face a big challenge in managing the central bank, including shifting political priorities.
Through the central bank and other institutions, China tightly controls how its currency, the renminbi, is used and valued. That means limiting the amount of money that Chinese citizens and companies, both foreign and domestic, can send across its border.
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China has also long used its banking system as an economic throttle, unleashing waves of loans when the government wants growth and ratcheting back when debt looks out of control. The system has kept China stable in times of global economic distress. But as China’s economy has matured, cracks have begun to show.
Previous efforts to juice the economy led to a startling rise in corporate debt. The system has long supported bloated, inefficient state-owned industries that many economists say are slowing down China’s development.
Mr. Zhou, an urbane English speaker who frequently hobnobs with world leaders in places like the World Economic Forum in Davos, Switzerland, has worked to gradually change China’s dependence on debt and its control of its currency. Under his administration, the central bank somewhat loosened China’s grip on the value of its currency. And he has championed programs that allow money to cross borders more easily.
He has also been a vocal, if diplomatic, critic of some Chinese economic policies — a rarity in a country that values consensus. “In recent years, nonperforming loans have risen, eroding bank capital and risk resilience,” he said in a statement posted on the central bank’s website on Nov. 4.
But the direction of China’s economic policy ultimately comes from the top, so Mr. Liu and Mr. Yi will take their cues from the president. It’s an agenda that emphasizes stability and growth, meaning they will most likely focus more on China’s priorities than those of the global markets.
After an exodus of capital, China tightened its limits on money flows outside the country over the past two years to bolster the value of its currency. It undermined Mr. Zhou’s efforts to loosen the reins.
Now debt is a paramount focus. The central bank will need to provide just enough credit to keep the economy running but not so much that debt keeps rising and inflation eventually becomes a problem.
Mr. Yi’s earliest well-known article for an economics journal, published in 1990 in the China Economic Review while he was still an assistant professor at Indiana University, had a turgid title that might prove especially useful: “Inflation and Price Instability: An Empirical Study of the People’s Republic of China.”
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Article source: https://www.nytimes.com/2018/03/18/business/china-central-bank-yi-gang.html?partner=rss&emc=rss
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