China: New PBOC Leadership, and a Mission to Washington

Published on February 26, 2018

At the invitation of US Treasury Secretary Steven Mnuchin, China’s President Xi Jinping has personally approved a visit to Washington this week by the rising star and increasingly powerful incoming Vice Premier, Liu He.

Liu will squeeze the short trip off this week, arriving Wednesday, February 28, and leaving Friday, March 1, to be back in Beijing for key political “Two Sessions” – the first session of the 13th National People’s Congress (NPC), and the 13th National Committee of the Chinese People’s Political Consultative Conference (CPPCC).

The purpose to Liu’s visit is twofold:

*** First, Liu’s mission will be to smooth over rising trade tensions with the United States, as well as to gather information on the economic policies of the Trump Administration as well as the Federal Reserve’s near-term policy path. ***

*** And secondly, President Xi Jinping’s selection of Liu to head the mission reflects Xi’s desire to appoint Liu as the new Governor of the People’s Bank of China, concurrently with his accession to the Vice Premiership, which would come despite internal reservations and a split between Xi and Premier Li Keiqang about such a move. ***

High Level Economic Diplomacy

During his visit to Washington, in addition to meeting Mnuchin, Liu will, from what we understand, be meeting with Commerce Secretary Wilbur Ross, as well as with the new Chairman of the Federal Reserve, Jerome Powell.

The main purpose of his visit will be to learn about the Trump Administration’s fiscal and trade policies for 2018 and its infrastructure plan, and in his meeting with Fed Chairman Powell, the outlook for US monetary policy.

In particular, in response to growing tensions between the two countries over steel and aluminum tariffs — and to head off potentially far more troubling tensions down the road over intellectual property rights — Liu will present Beijing’s position and suggestions for strengthening Sino-US economic, and trade, cooperation.

That will, specifically, include pressing for a date for a second meeting of the Sino-US Comprehensive Economic Dialogue in Beijing. Chinese officials maintain that their US counterparts have so far been non-responsive to their suggestions the dialogue be held in late April or May of this year.

A New PBOC Leadership

Upon Liu’s return to Beijing, the Politburo of the Communist Party of China’s Central Committee will submit formal recommendations for China’s central government and ministers of the state council to the National People’s Congress on Sunday, March 4.

We understand that Liu will succeed Ma Kai as Vice Premier in charge of the banking sector, and as head of the Financial Stability and Development Committee (FSDC) of the State Council. Liu’s portfolio will not, however, include running the industrial sector.

The succession to Governor Zhou Xiaochuan for leadership of the People’s Bank of China is, however, still up in the air.

Guo Shuqing, the current Chairman of the China Banking Regulatory Commission (CBRC), is said to be favored to head China’s central bank by Premier Li Keqiang, and he comes highly recommended by the State Council as well as by outgoing Vice Premier Ma Kai.

But from what we understand, Guo has not been endorsed or formally interviewed for the position by President Xi himself. While eminently qualified, Guo’s rivals maintain he may prove a bit too radical of a reformer for the PBOC, which, they maintain, should be led by a “more moderate” reformer.

That candidate would be Liu He, now very much in the running to head the central bank, concurrently with his position as Vice Premier. And while unusual, there is precedent for wearing that dual hat, a precedent that is perhaps telling.

That precedent came in 1991, when Zhu Rongji was elevated to the Vice Premiership concurrently with Governorship of the PBOC. That move set the highly qualified Zhu on the eventual path to the Premiership.

And from what we understand, President Xi is leaning towards Liu, over the reservations of Premier Li.

Were Liu, who lacks direct experience on the banking side, to assume leadership of the PBOC on top of the Vice Premiership, he would delegate a good deal of monetary policy responsibility to Deputy Governor Yi Gang, himself a candidate, albeit a fading one, for the governorship.

And Liu’s rising political fortunes are already being felt in the PBOC, where Liu Guoqiang, a protégé of his, was recently slated to replace Yang Ziqiang, a protégé of Guo’s, as an assistant governor of the central bank. Indeed, Liu He’s cronies already occupy two of the five deputy and assistant governor seats of the central bank.

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