China is about to get its first new central bank chief in 15 years, and the ultimate selection for the hot seat could demonstrate what Beijing is planning for the world’s second-largest economy.
Zhou Xiaochuan, the head of the People’s Bank of China, is expected to retire soon. He’s had the job since 2002, making him China’s and the G-20’s longest-serving central bank head, working under three Chinese presidents and alongside three U.S. Federal Reserve governors.
One of his greatest accomplishments was to end a direct peg of China’s yuan to the dollar, allowing market forces to play a greater role in setting the value of the currency.
Under his tenure, Zhou, 69, also oversaw the rise of the yuan to become more internationally accepted as a reserve currency. Zhou was at times controversial given his support for financial reform, making him a radical thinker in Beijing circles.
Zhou, an engineer by training and fluent in English, was well-liked abroad. He “had an international profile … in terms of reassuring the international markets — everyone thought he had a great deal of credibility and listened to him,” said Kerry Brown, professor of Chinese politics at King’s College London. “That’s a hard act to follow.”
Lately, Beijing has tightened its grip on the yuan to fend off market volatility and financial risk. While wider calls for market-oriented reform haven’t gone away, experts say China is questioning what will work best at home.
There’s a “diminishing confidence in the Western model, post-global financial crisis,” said Andrew Polk, co-founder and economist at Beijing-based research firm Trivium China.
Unlike its Western counterparts, China’s central bank doesn’t have full autonomy to decide policy: The State Council, the country’s highest executive body, has the final say. Still, the PBOC did gain some relative independence under Zhou. What’s at stake now is how much liberty Beijing’s pick for the job will have — or if China’s top leaders will exert greater control on the levers behind the scenes.
Meet the two frontrunners:
Guo currently heads the China Banking Regulatory Commission. He previously led the securities regulatory body, served as the chairman of state-owned China Construction Bank, and was head of the State Administration of Foreign Exchange. He also held political positions, including as governor of Shandong province and vice governor of Guizhou province. He was born in Inner Mongolia, has a bachelor’s in philosophy and a PhD in law, and has long been floated for the job.
Since taking up his CBRC post in February, Guo has overseen a number of actions cracking down on risks in China’s financial system.
“These new measures indicate that Guo intends to pursue more regulatory enforcement and advance the role of his commission more forcefully than did his predecessor,” analysts at risk consultancy Eurasia Group wrote in an April note. That expectation has held true.
Guo is known for being brash, and he ruffled feathers at the helm of the China Securities Regulatory Commission. But his recent moves at the CBRC appear to have support among top leaders.
Jiang was named Communist Party Secretary of Hubei province last October, and has served as the chairman of two state-owned banks – Bank of Communications and Agricultural Bank of China – and as head of China Development Bank, a government financial institution.
Earlier in his career, he also led the PBOC’s Shenzhen and Guangzhou branches. In Guangzhou, he dealt with what was then China’s biggest bankruptcy ever: a $5 billion default of Guangdong International Trust and Investment Corporation that made headlines in 1999. It was the first since the Communist revolution in 1949, and Jiang worked to stem the fallout with Wang Qishan, who was then the vice governor of the province and is now China’s powerful anti-corruption czar.
“In China, this type of early firefighting with a political rising star is where careers are often made, and Wang Qishan is still seen to be a Jiang backer,” said Polk.
A few other names are on the short list: Liu Shiyu, chairman of the China Securities Regulatory Commission, and Yi Gang, the PBOC’s deputy governor. But experts say it’s looking more like a two-horse race between Guo and Jiang.
What will policy look like?
The government has engineered calm and stability in China’s economy and markets leading up to a major leadership shuffle, due to take place next month. As such, Beijing has been mum on major reform plans all year.
President Xi Jinping is sailing into his second term in power, and “the presumption here is that what happened in the first five years was all politics,” said Damien Ma, a fellow at think tank Paulson Institute.
He said he expects to see “more doubling down on reforms, and if the reforms go down to deleveraging, fixing the state sector in a more meaningful way, you’re not going to get amazing growth out of that.”
When it comes to pushing ideas through, Jiang would “be less independent — he’s a [Communist] Party man through and through — and someone like Guo Shuqing seems a little bit more willing to carve out a space to operate,” Polk said.
Because of Jiang’s political clout, “he could have a really strong voice, but there’s a chance he just falls in line and diminishes the PBOC’s relative autonomy,” he added.
Guo, on the other hand, speaks English, and is more well-known internationally, and that’s important if China is seeking a greater role on the world stage. If Guo gets the job, it would likely be “viewed as a market positive — Guo is more of a known quantity, as he’s been in the finance world a while,” said Ma.
The perfect candidate will need to have access and credibility with Xi, Brown said, adding that the new governor will also need to be able to “meet finance ministers, bankers from elsewhere, like the Bank of England and the Federal Reserve, and be able to talk the same language.”
Experts are divided on whether it even matters who gets the job: Against constantly shifting political winds and a lack of transparency in government, it’s hard to really tell how much power the governor can wield when it comes to setting policy.
And it’s policy that generally drives how investors view Chinese markets, said an employee at one of China’s state-owned securities firms, who requested anonymity given the sensitive nature of the topic.
“China is still a top-down place,” he said. “The guy who ends up in that seat will be someone who [Xi] pretty much trusts, and someone pretty loyal to him.”