U.S. Treasury Chief Has a New Phone-Friend on Yuan in China

  • Top economic adviser discusses China currency policy with Lew
  • U.S. realizes it should `call the Xi advisers,' professor says

Days after China executed a currency devaluation in August, U.S. Treasury Secretary Jacob J. Lew spoke with a senior Chinese official about the surprise shift.

It was one of a number of calls and meetings with Vice Premier Wang Yang last year as Lew engaged on policy changes with his Chinese counterpart around the bilateral Strategic and Economic Dialogue gathering.

Now, Lew has a new telephone partner: Liu He, one of President Xi Jinping’s top advisers. That’s who he spoke with in the past week to discuss China’s communications about its currency policy, according to a Treasury statement released late Sunday in Washington. The change in interlocutors has caught the attention of observers who see a telling sign of Xi’s increasing influence at the expense of the State Council, the Chinese cabinet led by Premier Li Keqiang.

“It does underline this idea which has taken grip over the last couple of years that Li Keqiang is somewhat sidelined and weak as a premier,” said Kerry Brown, a professor of Chinese studies and director of the Lau China Institute at King’s College London. “It also fits with the idea that Xi Jinping runs China with a group of close advisers around him, of whom Liu He has been a stalwart.”

November Meeting

U.S. Treasury statements show at least three calls with Wang in the second half of 2015 as China’s economic slowdown and market turmoil reverberated across the global economy and contributed to a delay in the Federal Reserve raising interest rates. For example, Lew spoke Nov. 6 with the vice premier in preparation for the Group of 20 summit in Turkey. At the summit itself, Lew met with Wang and Liu, who had accompanied President Xi. 

Lew last spoke with Wang by phone on Dec. 21, according to a Treasury official who asked not to be identified. The Treasury hasn’t issued a public statement on that call.

Fast forward to this month’s market turmoil and a renewed slide in the yuan, and it’s Liu with whom the Treasury chief is speaking. An advocate for market-based reforms, Harvard University-educated Liu has served as Xi’s right-hand man on economic affairs, helping draft the latest five-year plan. 

Liu not only heads the general office of Xi’s financial leading group but earlier this year became deputy party chief of the state economic planning office. The posts give him central roles in short-term as well as long-term decisions about China’s development.

The Treasury official said Lew holds regular conversations with Wang. Lew previously met with Liu during a visit to Beijing in May 2014, in between lunch with Wang and a session with Li Keqiang.

Taking Lead

“Xi is taking the lead on economic policies, as in practically everything else,” said Alicia Garcia Herrero, Asia Pacific economist at Natixis SA in Hong Kong, citing Lew’s call with Liu as “one more sign.”

Since taking over as head of the Communist Party in November 2012, Xi has amassed greater control of economic policy making by heading up two “leading groups,” one on reforms and the other on financial and economic affairs normally steered by premiers.

Not all saw the change in phone partners as significant.

“Mr. Wang is a higher-level official in China than Lew,” said Ann Lee, author of “What the U.S. Can Learn From China” and an adjunct professor of economics and finance at New York University. “It is appropriate and not significant for Liu to discuss issues with Lew on routine business matters since these are not new policy matters.”

Even so, Liu hasn’t previously served as a main official discussing exchange-rate matters. The Lew call shows that when U.S. officials “have real concerns that they feel need action, they pick up the phone and call the Xi advisers, not the people on paper at least who are meant to be in charge of this policy area,” Brown said.

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