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Speculation swirls over China's next central bank chief

Front-runner indicates potentially bigger role for President Xi's right-hand man

BEIJING With China's central bank Gov. Zhou Xiaochuan set to step down after 14 years on the job, a likely successor has emerged in the person of Jiang Chaoliang, party secretary of Hubei Province.

Whether Jiang ascends to the post will say a great deal about what is happening at the highest ranks of China's power structure, and about the fate of its second-most powerful figure, anti-corruption czar Wang Qishan, the right-hand man to President Xi Jinping.

Zhou has served as governor of the People's Bank of China since December 2002, having been reappointed in March 2013. This has made him the longest-serving central bank chief since the PBOC was established in 1948, and one of the most influential economic figures in the world. He is due to step down by March.

In June, Chinese social media began mentioning Jiang as possible front-runner to succeed Zhou. It is not uncommon in China, where the media are strictly controlled, for information on the country's top leadership jobs to be leaked to social media before appearing in the mainstream media.

Market attention is focused on the relationship the new governor will have with Xi, and on how much latitude Xi will give the governor to do his job.

The selection of Zhou's successor is also being closely watched outside the financial sector for the hints it will provide about the fate of Wang Qishan, secretary of the Central Commission for Discipline Inspection, the country's main anti-corruption body.

Wang, 69, has spearheaded President Xi's signature anti-corruption campaign. Whether he is forced into retirement or allowed to stay beyond the usual retirement age of 68 will be one of the most-watched topics at the Communist Party convention scheduled to start on Oct. 18.

Jiang, the leading candidate for PBOC governor, has a long history of working with Wang.

He started out as a banker at state-owned Agricultural Bank of China three decades ago. Among the highlights of his extensive career is the liquidation of Guangdong International Trust and Investment, a nonbank financial institution that went bankrupt in 1998 in the wake of the Asian currency crisis.

Wang, the vice governor of Guangdong Province at the time, headed the process. Jiang, as branch governor of the PBOC in Guangdong, was part of the "Gang of Five" under Wang that ran the show.

The scale of the 1998 bankruptcy was unprecedented in China. The case played an important role in preventing the currency crisis from spreading to China's financial system. Jiang earned Wang's confidence with his bold and steady performance, becoming his top aide both in name and effect.

Jiang was chairman of the Bank of Communications when in 2005 it became China's first major bank to list on the Hong Kong Stock Exchange.

After returning to serve as head of the ABC, Jiang became governor of Jilin Province in 2014. He became party secretary of Hubei Province last October.

Adding credibility to the speculation that Jiang is next in line for the PBOC job, the name of his potential successor as party secretary was also leaked, as was that of the potential new chief of the Hubei customs office.

Hearing that Jiang may be the leading candidate for the PBOC governorship, one banking analyst at a major Chinese brokerage said it was surprising but plausible.

Since the beginning of this year, President Xi has tightened control of China's financial sector, raising interest rates in the short-term money market, tightening banks' credit and detaining some well-known investors.

Xi has repeatedly said financial security is important to national security, and that financial-market distortions and housing bubbles are risks to the country's stability. To eliminate such risks, a further shake-up of the financial sector will likely be needed after the party convention. Jiang could be perfect for the job, given his experience overseeing liquidation procedures during the Asian currency crisis and his first-hand experience in dealing with financial crises.

But is unclear how his close relationship with Wang will play out.

Zhou Xiaochuan will step down as governor of the People's Bank of China by next March.   © Reuters

The relationship could work in Jiang's favor. But chatter in Beijing's financial markets is rife that Wang asked Xi to pick Jiang as mayor of Beijing three times last year, but Xi became weary of Wang's pestering. Xi eventually chose Cai Qi, his longtime subordinate when Xi worked in Fujian and Zhejiang provinces.

Such talk could just be noise, however, put out by people eager to see Wang fall.

Many experts believe the relationship between Xi and Wang will remain unshaken. If the Beijing story is true, Wang's retirement could reduce the possibility of Jiang becoming governor. If Wang remains, Jiang's chances will be better.

OTHER CONTENDERS Also on the list for the PBOC's top job are the chairmen of the country's banking and securities regulatory commissions.

Guo Shuqing, who became chairman of the China Banking Regulatory Commission in February after serving as governor of Shandong Province, has vast experience in financial administration, including heading the China Construction Bank and the China Securities Regulatory Commission.

Guo is known as a reformist, and as chairman of the China Securities Regulatory Commission he has called for reform of the securities market. He studied in the U.K. and speaks fluent English.

Some credit Guo for proposing the June revision to the way the PBOC calculates the yuan's reference point set each morning, giving more discretion to the central bank. The move helped stabilize the currency.

Other candidates are Liu Shiyu, chairman of the China Securities Regulatory Commission, and PBOC Deputy Gov. Yi Gang.

Liu was among the first financial bureaucrats to support Xi's tough stance on murky stock trading. In February, he said the market will not allow "financial crocodiles to peel the skin and suck the blood" of retail investors.

An executive of an investment fund in Beijing said that while Liu is favored by the leadership, he is unpopular among private investors, as his policies have not helped lift stock prices.

Yi has a good command of English and hands-on experience at the central bank. Some PBOC officials say Yi would be the easiest candidate to work with because he can be expected to continue Zhou's policies.

But one government economist believes Yi is no longer on the list because he was in a foreign country for too long. He lived in the U.S. from 1980 to 1994, first as a student and then as university professor.

Zhou's fluency in English has helped him raise the PBOC's profile overseas, earning him the nickname "Mr. Yuan."

Unlike the more independent central banks of Japan, Europe and the U.S., the PBOC is a unit of the State Council, part of the government. Raising interest rates thus requires the State Council's approval.

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