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China People's Congress 2018

China promotes deputy Yi Gang as new central bank governor

Liu He named vice premier, bolstering leading role on financial issues

CK TAN, Nikkei staff writer | China

BEIJING -- Yi Gang, a former academic, has taken the reins of China's central bank, following in the footsteps of respected reformer Zhou Xiaochuan.

Meanwhile, Liu He, who has emerged as President Xi Jinping's top economic adviser, was named as one of four vice premiers for Xi's second term. The appointment of Liu, who some saw as a leading candidate to succeed Zhou as governor of the People's Bank of China, underlines the leading role he now has on financial issues at a time the government is focusing on restraining the growth of debt and curtailing financial risk.

Fraser Howie, a Singapore-based analyst tracking Chinese financial markets, called Yi a "safe pair of hands, who knows the PBOC inside out but will not have the impact that Zhou did."

"Zhou built the PBOC and his role over a period of significant change in China," Howie said. "That gave him leeway and influence. Yi Gang has now taken over a mature role, but one very much at the call of Liu He and Xi Jinping."

Han Zheng, a member of the Communist Party Politburo, was also named vice premier. A former mayor of Shanghai, Han has deep experience running state-owned industrial companies. He is expected to work closely with Liu to execute economic reforms, especially moves to address the huge debts of state companies.

The National People's Congress overwhelmingly approved Yi's appointment as the new PBOC governor. He has been deputy governor since December 2007. Some 2,965 legislators backed Yi, with just two voting against him and two abstaining.

Liu He, who has emerged as President Xi Jinping's top economic adviser, was named as one of four vice premiers.   © Reuters

Under a new reorganization of government functions, the PBOC will take over some roles now handled by China's banking and insurance regulators, which are to merge. In particular, the PBOC will now be responsible for drafting new laws and regulations for the two financial sectors and will also take on more responsibility for monitoring key financial institutions.

In his 15 years as governor, Zhou is credited with persistently pushing ahead with gradual financial reforms, including the liberalization of bank lending and deposit rates and the yuan's exchange rate. Analysts and economists have been speculating intensely in recent months as to who would be named to succeed him, with attention focused on a handful of candidates. Few identified Yi as a front-runner.

After studying at Peking University and then earning a doctorate in economics from the University of Illinois in the U.S., Yi went on to teach at Peking University and Indiana University. He joined the PBOC's monetary policy committee at the height of the Asian financial crisis in 1997.

Bai Hexiang, head of the PBOC's Xi'an branch, called Yi "easy going." He added, "Compared to officials who do not have an overseas background in the PBOC, Yi has better knowledge of international monetary policy."

"Compared to others in China's government, Yi stands out as an impressively qualified technocrat," wrote Chen Long, China economist at research company Gavekal Dragonomics, in a client note on Monday.

"As Zhou's right-hand man he is fully signed up to policy priorities such as completing the process of liberalizing the setting of interest rates and the currency exchange rate," Chen said. "In recent years he has effectively run the PBOC day-to-day and has been responsible for making many major decisions."

According to Chen, China's leadership now believes that financial liberalization has moved too quickly. "The top leadership is recognizing that a lot of risks have accumulated in the financial sector, and it is taking multiple measures to address them," Chen wrote in an earlier note. "Zhou's successor will very likely need to put financial stability over liberalization, and move carefully in defusing risks."

In an article in a central bank publication in January, Yi wrote that the bank would work to improve its use of monetary policy and macro-prudential tools to reduce systematic risk and maintain financial stability.

Yi, who born in 1958, told reporters after the NPC vote that he felt "calm" about taking on the heavy responsibility of running the central bank. He vowed to continue prudent monetary policy, drive reforms and maintain financial stability.

President Xi Jinping's fight against corruption is likely also to involve Yi. Diana Choyleva, chief economist of Enodo Economics, a forecasting company in London, noted in a report earlier this month that the Communist Party's anti-corruption unit has recently been warning of corrupt collusion between financial regulators and institutions under their oversight.

"The government's resolve to tackle financial vulnerabilities among non-banks by extending its anti-graft drive to the sector will lead to highly visible actions in 2018," she said. "A crackdown promises to be a source of significant market risk in the form of increased financial volatility and possible policy mistakes."

Separately, the NPC on Monday approved Xi's full cabinet lineup for his new term, with fresh faces taking over several high-profile roles. Liu Kun, director in charge of budget matters for the rubber-stamp parliament, will be the new finance minister.

Wang Yi will stay on as foreign minister, but with the added role of state councilor. He is expected to work closely with Vice President Wang Qishan in managing relations with the U.S. and handling China's assertion of a more prominent role in global affairs.

"The bottom line is, as the world's largest economies, China's and America's interests are deeply entwined," Wang Yi told reporters on March 9. "We must bear in mind not just the interests of our own people, but also the well-being of the world."

Wei Fenghe, a commander of the People's Liberation Army Rocket Force, which manages the nation's missiles, has been promoted to defense minister. The Rocket Force was one of the three new divisions set up by Xi in 2015 as part of military reforms to enhance China's defense capability.

He Lifeng and Zhong Shan will keep their positions as chairman of the National Development and Reform Commission and minister of commerce respectively.

Additional reporting by Nikkei Asian Review deputy editor Zach Coleman in Beijing.

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