China Prepares for Government Shuffle as Zhou Stays at PBOC
China’s ruling party is planning to keep Zhou Xiaochuan as central bank governor as it prepares for the broadest shuffle of government leadership in five years, according to a person with direct knowledge of the discussions.
Zhou will remain head of the People’s Bank of China, according to the person, who asked not to be named as the talks are private. The move contrasts with forecasts after he was left off the Communist Party’s revamped Central Committee member list in November, and comes ahead of an annual meeting of the nation’s legislature, when party boss Xi Jinping is projected to become president, and Li Keqiang premier.
The party usually reassigns officials including cabinet ministers and chiefs of state-owned companies every five years, with next month’s meeting part of a broader once-a-decade leadership transition to a new generation of party officials. Retaining Zhou, 65, would provide stability at a time when the PBOC is grappling with rising risks from shadow banking and changing how it conducts monetary policy.
“They need Zhou’s experience in spearheading the next structural reforms that the banking system needs,” said Andy Mantel, founder and chief executive officer of Pacific Sun Advisors, an asset manager in Hong Kong that invests in Chinese stocks. “Banks at some point in the next few years will likely be in a position to sell off bad loans, and Zhou will help facilitate this process.”
Zhou is likely to be named a vice chairman of the Chinese People’s Political Consultative Conference so he can serve beyond retirement age at the PBOC, the person said.
Reuters reported Feb. 20 that Zhou would stay on and probably become a vice chairman of parliament’s top advisory body, with Bank of China Ltd. Chairman Xiao Gang likely to be named the PBOC’s Communist Party secretary, setting him up to succeed Zhou eventually. Zhou now holds the secretary post.
An official with the PBOC’s news department, who asked not to be identified because of the institution’s rules, said last week that the central bank wouldn’t comment on the report.
The Communist Party’s omission of Zhou from its new 205- member Central Committee in November and a Feb. 2 profile by the official China Securities Journal that said he’d step down in March had signaled the governor, who took office in 2002, would leave as part of a once-a-decade leadership change.
“It seems the central leadership couldn’t reach a consensus on a new candidate, so as some kind of compromise they are having him stay on,” said Bo Zhiyue, senior research fellow at the National University of Singapore’s East Asia Institute and author of several books on China’s elite politics.
Keeping Zhou as governor would make him a “lame duck” who isn’t in a position to start new policies, Bo said. “That’s not very good for China considering how it deals with this new reality of global finance is really critical for China’s future.” Should another official become the PBOC’s party secretary, the person would outrank Zhou and leave him without full power over the central bank, Bo said.
Chen Zhiwu, a finance professor at Yale University in New Haven, Connecticut, and former adviser to China’s State Council, said splitting the party secretary and PBOC governor posts “does complicate things more than before, but this is not unusual for government agencies or organizations in China.”
“They will get along fine,” Chen said. Zhou is likely to “continue his reform efforts to solidify his legacy,” he said in an e-mail.
Zhou led the central bank during the global financial crisis and oversaw exchange-rate reforms in July 2005 that paved the way for the yuan to rise more than 30 percent against the U.S. dollar. He also expanded the bond market, gave banks more freedom to set lending and deposit rates and loosened controls over the yuan’s use for international trade and investment purposes.
The governor must confront an expansion in credit outside the banking system that includes less-regulated products such as trust loans. Aggregate financing, an indicator started by the PBOC in 2011 to gauge funding in the economy, rose 160 percent to a record 2.54 trillion yuan ($407 billion) in January from a year earlier.
In its quarterly monetary policy report released Dec. 28, the PBOC highlighted the need to control risks as an objective, a possible sign of growing concern that a surge in non-bank lending will lead to defaults.
A report today from HSBC Holdings Plc and Markit Economics showed China’s manufacturing may expand in February at the slowest pace in four months, underscoring the headwinds faced by policy makers in the world’s second-biggest economy.
China’s new leaders will also this week consider plans to revamp the central government as part of efforts to streamline bureaucracy and boost an economy that’s recovering from the slowest growth in 13 years. The Communist Party’s 25-member Politburo endorsed draft reforms that will be discussed by the broader Central Committee on Feb. 26-28, the official Xinhua News Agency reported on Feb. 23 without giving details.
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