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Analysis
Building on Zhou's legacy

Building on Zhou's legacy

Shortlist for China central bank chief

by Adam Cotter in Singapore

Mon 12 Feb 2018

Market watchers looked to last October's Chinese Communist party congress for signals on the future leadership of the People's Bank of China. Onlookers expected to get a clearer indication of who may replace Governor Zhou Xiaochuan, who turned 70 last month. Details are only now beginning to emerge, and it appears Zhou will step down by March after 15 years in charge of the central bank. His successor in this politically challenging position will have to contend with mounting debt and financial sector reform.

The standing committee of the National People's Congress met at the end of January and had on its agenda the review of potential appointments. The next governor will need to be endorsed by President Xi Jinping and receive the backing of Liu He, his economic confidant.

Liu, who has known Xi since high school, will take a leading role in steering the economy, confirmed by his elevation last year to the 25-member politburo. He is expected to become a vice-premier in charge of finance (though this may not necessarily preclude him from becoming head of the central bank). Liu along with He Lifeng, one of Xi's protégés, who is set to remain minister in charge of the influential national development and reform commission, will be entrusted with handling financial and economic issues.

Two officials have been viewed for some time as prime contenders for the governorship. These are Jiang Chaoliang, Communist party chief of Hubei province, and Guo Shuqing, chair of the China Banking Regulatory Commission. Jiang is already familiar to the PBoC, having been director of its Shenzhen and Guangzhou branches during the Asian financial crisis. In 2000 he was promoted to assistant to Governor Dai Xianglong, Zhou's predecessor.

Guo draws more attention as a financial sector expert and is considered, like Zhou, to be a liberal market reformist. But his age may work against him, as ministers who run the central bank and the main regulatory commissions typically retire at 65; Guo will turn 62 in August. (Zhou has of course been a major exception to this rule). There remains much work to complete at the banking regulatory commission, so it may be difficult for Guo to move on to another senior position later.

It is possible, too, that a candidate from inside the PBoC will be favoured in the light of the bank's significant institutional capacity and credible policy record. Deputy Governor Yi Gang is a frontrunner and the technocratic first choice. There is no easy remedy for the problems facing the next governor, including, as Zhou has often highlighted, asset bubbles and high debt among corporates and households. At the end of 2017, China's debt-to-GDP ratio rose to an estimated 317%.

It is clear that the government favours gradualist measures to curb debt. Yi, also vocal on this issue, recently cautioned that Chinese debt levels remain high. He would be a shrewd choice for an institution working hard to improve its communications.

Another competitor in the PBoC could be Deputy Governor Yin Yong, who served at China's foreign exchange regulator for nearly two decades. He worked in Singapore for a subsidiary of the central bank called the Investment Company of the People's Republic of China, and is regarded highly by PBoC observers.

The government is likely to anoint a new governor rather soon. The appointee will need to be politically savvy and maintain support from the government, as well as have the skills to guide China through a potential debt crisis and further (possibly more cautious) internationalisation of the renminbi. Zhou has been governor for longer than any other leading central bank chief. To build on Zhou's considerable international legacy, the new helmsman will need some element of worldly flair.

Adam Cotter is Head of Asia at OMFIF.

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