Zhou Seen Leaving PBOC as China Picks New Economic Chiefs

China began installing a new economic leadership by indicating that central bank Governor Zhou Xiaochuan will step aside and Vice Premier Wang Qishan, the top finance official, will move to a new role.

Zhou, Commerce Minister Chen Deming and Finance Minister Xie Xuren were absent from the Communist Party central committee named yesterday, suggesting they will probably exit those jobs. The Politburo Standing Committee, the supreme decision-making body in China that will be announced today, is forecast to include Vice President Xi Jinping and Vice Premier Li Keqiang.

The composition of China’s new leadership, decided in a once-a-decade transition of power, may determine the pace of change on issues such as deregulating interest rates and breaking up state monopolies. The make-up of the standing committee will provide more evidence on policy direction as the world’s second-biggest economy shows signs of rebounding from a seven-quarter slowdown.

“One of the biggest challenges will be pushing through reforms in the financial sector while keeping the banks stable and not causing too many problems for state-owned enterprises that rely on cheap bank credit,” said Mark Williams, a London-based economist for Capital Economics Ltd. and a former adviser to the U.K. Treasury on China. “Different constituencies are pulling the financial regulators and the central bank in different directions.”

Central Committee

Wang may head the party disciplinary body. Liu He, a senior government economic adviser, joined the central committee for the first time. Williams sees Zhou stepping down “fairly soon.”

The benchmark Shanghai Composite Index fell 0.7 percent as of 9:42 a.m. local time, set to extend this year’s 6.6 percent decline. The yuan was little changed at 6.2276 against the dollar.

The 205 members of the central committee, a body that includes the government’s top leaders, generals of the People’s Liberation Army and heads of the biggest state-owned enterprises, were identified on state television after the party’s 18th congress ended yesterday in Beijing. Zhang Ping, head of the National Development and Reform Commission, the top economic planning agency, was absent from the list. Lou Jiwei, chairman of China Investment Corp., became a full member instead of an alternate.

Official Career

Yesterday’s change may signal the end of the official career of Zhou, 64, who helped pave the way for the yuan to rise 33 percent against the dollar starting in 2005 and oversaw a loosening of controls on lending and deposit rates this year. His successor will need to manage the currency and inflation to support a growth rebound while lacking the political independence of counterparts such as U.S. Federal Reserve Chairman Ben S. Bernanke.

At a Nov. 11 press briefing, Zhou didn’t directly answer a question on retirement. His appointment was announced on Dec. 28, 2002, after the 17th party congress the previous month.

Wang, 64, was appointed to the Communist Party’s Central Commission for Discipline Inspection, the official Xinhua News Agency reported yesterday. That signals that Wang will take the top discipline post on the standing committee, said Bo Zhiyue, senior research fellow at the National University of Singapore’s East Asia Institute. He would replace He Guoqiang.

“This is going to be a huge waste of his strength in dealing with economic, financial matters and foreign affairs,” Bo said. “He’s a banker who’s going to be in charge of disciplinary affairs. It’s a mismatch between his true talent and his assignment.”

‘Uncle’ Wang

Wang, who jokingly calls himself the uncle of U.S. Treasury Secretary Timothy F. Geithner and is a former president of China Construction Bank Corp., helped lead China’s response to the global financial crisis.

Possible replacements for Zhou include Shang Fulin, head of China’s banking regulator; Guo Shuqing, chief securities regulator; Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing; and Bank of China Ltd. Chairman Xiao Gang, according to David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department and now an Asia analyst in Los Angeles at TCW Group Inc.

Shang retained a spot on the central committee yesterday while Guo and Xiao were promoted to the group from being alternate members. Jiang remained an alternate.

Likely Successor

Yu Yongding, a former academic adviser to the People’s Bank of China, or PBOC, said Shang is the “most likely successor” and Guo would be “the best successor.” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said Guo is the most probable replacement given his previous experience at the central bank.

“He has shown himself in a number of positions to be a reformer so he would be a successor in Zhou’s mold,” said Lardy, author of books on China including “Sustaining China’s Economic Growth After the Global Financial Crisis.”

Chen Zhiwu, a finance professor at Yale University in New Haven, Connecticut, and former adviser to China’s State Council, said Guo and CIC’s Lou would be the best candidates to replace Zhou, who has represented the nation on the world stage “better than anyone else, vastly increasing China’s soft power and positive image.”

Liu, 60, played a role in dialogue between the U.S. and China as the global financial crisis intensified with the collapse of Lehman Brothers Holdings Inc. in 2008. His elevation highlights his potential clout under a new administration led by Xi, who will probably be named general secretary of the party today, setting him up to succeed President Hu Jintao in March.

Key Person

“Liu He’s the key person in determining what kind of economic policy package ultimately makes it to Xi Jinping’s desk,” said Barry Naughton, author of the 2006 book “The Chinese Economy: Transitions and Growth” and a professor at the University of California at San Diego.

Liu is vice minister of the State Council’s Development Research Center and vice chairman of the Office of the Central Leading Group on Financial and Economic Affairs. He graduated with a master’s degree in public administration from Harvard’s Kennedy School of Government in 1995, school records show.

China’s economy has slowed more than analysts had forecast this year, growing 7.4 percent in the third quarter, the least in more than three years. Leaders have cut interest rates while refraining from being as aggressive with stimulus as during the global financial crisis. Pickups in industrial production, exports and retail sales in September and October point to a stronger expansion.

The challenge for the new leadership will be “crafting something to show that they are really serious” about changing the economy, Naughton said. Hu and President Wen Jiabao “were forever saying, ‘Yes, we’re going to push forward with economic reform’ -- and you just didn’t see it.”

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