China forms new economic team

BEIJING: China elevated a key confidante of President Xi Jinping to one of the top positions in government on Monday as Beijing cracks down on riskier financing and a debt build-up that may pose systemic risks to the world´s second-largest economy.

The endorsement of Liu He as a vice premier by the country´s largely rubber-stamp parliament also comes as the United States presses China to cut its trade surplus by $100 billion. Harvard-educated Liu, 66, was the most prominent envoy to visit Washington recently to prevent the outbreak of a trade war.

While most of the personnel changes on the government´s economic team were widely anticipated, the choice of Yi Gang as the new head of the People´s Bank of China (PBOC) was unexpected.

Yi is a vice governor of PBOC and a protege of outgoing chief Zhou Xiaochuan. His appointment is seen as pointing to continuity in monetary policy even as one of the world´s biggest central banks is gaining considerable new regulatory powers.

Yi will have a weighty first test - the U.S. Federal Reserve is expected to raise interest rates on March 21, a day after China´s annual parliament ends, and markets are keen to see if the PBOC follows with a modest move of its own. The head of a newly merged banking and insurance regulator is also expected to be announced on Monday.

Reform-minded Guo Shuqing, 61, the current chair of the China Banking Regulatory Commission, is viewed as the leading candidate.

Liu He is expected to help improve supervision and coordination among regulators and the central bank to fend off financial risks, as head of the cabinet-level Financial Stability and Development Commission (FSDC). That would put Liu on a similar standing with former economic tsar Zhu Rongji, known for his tough handling of hyperinflation and the economic chaos in the 1990s.

Zhu held both the posts of vice premier and central bank governor simultaneously from 1993 to 1995, and went on to become China´s premier in 1998-2003.As Xi begins his second five-year term as president, Beijing is streamlining regulators and ministries to reduce inefficiencies while expanding the remit of others such as the central bank to boost their policymaking powers. Xi has also promoted top graft-buster Wang Qishan, a major ally, to the post of vice president.

"China´s ministries are giant, nationwide siloes and fiefdoms that never talk to one another. Hence, in order to accomplish anything major, the command must come from the top down; only they can get ministries to work together," Cliff Tan, east Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ, said in a note. "Such a setup nearly guarantees the continuation of power that is never devolved, otherwise nothing would get done.

"Liu has a deep understanding of the country´s economic issues, and was elected last October into the 25-member Politburo, the second-highest tier in Beijing´s political power structure after the seven-member Politburo Standing Committee.