China opts for policy continuity in new central bank chief

By Kevin Yao

BEIJING (Reuters) – The appointment of central bank insider Yi Gang as the new People’s Bank of China governor signals continuity in policymaking, even as Yi is expected to have less room than his predecessor to push for reforms as Beijing focuses on stability.

The 60-year-old Yi, a vice governor at the central bank since the outbreak of the global financial crisis a decade ago, has big shoes to fill in replacing the high-profile Zhou Xiaochuan, who stepped down after 15 years.

Yi, a 20-year PBOC veteran, may to some extent operate in the shadow of Liu He, an ally of President Xi Jinping, who on Monday was given a broad role supervising the economy and financial sector and outranks him as a politburo member.

Both appointments were made during a five-yearly reshuffle of top jobs during the annual meeting of China’s largely rubber-stamp parliament that also saw Xi launch his second term.

Yi and Liu have a close working relationship, policy insiders said, forged as Liu headed the General Office of the ruling Communist Party’s Central Leading Group for Financial and Economic Affairs, while Yi was its deputy head.

An economist, Yi spent 14 years in the United States completing his doctorate at the University of Illinois and teaching at Indiana University, experience that puts him at ease when it comes to able mingling with foreign central bank and economic officials who were accustomed to the engaging Zhou.

Yi’s long years outside China – those who return from overseas are colloquially known as “sea turtles” – make him an anomaly in a leadership cadre that consists almost exclusively of domestically groomed officials.

Policy insiders said Yi’s appointment on Monday can be seen as a victory for Zhou.

While Yi has a track record of implementing policy changes and currency reforms in recent years, he faces formidable challenges in reducing China’s reliance on credit to fend off financial risks while keeping economic growth steady.

Yu Yongding, an influential government economist and former central bank policy adviser, said Yi’s appointment sends a positive signal for international markets. Chinese shares ended higher on Monday.

“He is an important symbol of monetary policy continuity,” Yu said.

REFORM-MINDED

Yi has advocated for interest rate and currency liberalization, cautioning against risks from excessive credit and money growth.

He helped implement major currency reforms in 2005 and 2015, with the latter turning out to be less successful as it led to a wave of capital flight and currency depreciation, prompting authorities to impose capital controls.

Some analysts have questioned China’s commitment to market reforms, with Xi poised to rule indefinitely after parliament this month ditched presidential term limits, and as the ruling Communist Party tightens its control, including a more centralized financial regulatory oversight structure.

“Openness leads to progress and closure points to backwardness,” Yi told a news conference on the sidelines of the annual parliament on March 9, when asked about the central bank’s ongoing efforts to push financial opening.

Zhou, who took the helm of the PBOC in 2002, is credited with loosening interest rate controls, boosting the yuan’s global clout and developing new policy tools as Beijing seeks to control risks that have been fueled by past stimulus.

Zhou lured Yi to join the PBOC in 1997, when Yi was a professor at Peking University. Yi also served as head of the State Administration of Foreign Exchange (SAFE) from 2009 to 2016.

HUMBLE BACKGROUND

Unlike Zhou, who as the son of a former government minister is known as a “princeling,” Yi comes from a humble background, enrolling at the elite Peking University after spending several years in the countryside during China’s “Cultural Revolution”.

Zhou was China’s longest-running central bank chief, staying on past retirement age after he was appointed a vice chairman of the top advisory body to parliament in 2013, a move that made him a national leader.

Yi, by comparison, is only an alternate member of the Communist Party’s central committee, the largest of the party’s elite decision-making bodies, comprising 204 full members and about 170 alternate members.

Source: Investing.com