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  • Jul 12, 2014
  • Updated: 5:07am

Li Keqiang

Li Keqiang, born in 1955, became China's premier in March 2013. Like ex-president Hu Jintao, his power base lies with the Communist Youth League, where he was a member of the secretariat of the league’s central committee in the 1980s and later in the 1990s the secretariat’s first secretary. His regional governance experience includes a period as vice party boss, governor and party boss of Henan province between 1998 and 2003 and party boss of Liaoning province beginning in 2004. He became vice premier in 2008. Li graduated from Peking University with a degree in economics. 

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Li at crossroads in the fight for economic changes

PUBLISHED : Monday, 28 October, 2013, 4:32am
UPDATED : Monday, 28 October, 2013, 7:56am

Premier Li Keqiang may want to be seen as a dedicated economic reformer, but political squabbling among his subordinates and lingering resistance to pro-market policies limit the likelihood he can deliver real change, government insiders say.

One of his biggest obstacles may even be the economic philosophy investment bankers have dubbed "Likonomics" - no stimulus, deleveraging and structural reform.

Sources familiar with the thinking of Li told the South China Morning Post that the premier was conscious of the risk that giving too high a profile to his reform ideas could impede their progress.

"In China, being high-profile may not necessarily be a good thing," said one of the sources. "Tall trees catch much wind."

That wind may strengthen during the third plenary session of the Communist Party's 18th Central Committee, scheduled to be held next month.

Expectations for reform have been high ever since Li came to office along with President Xi Jinping in a once-a-decade handover of power at the top of the party that was completed in March.

They have become stronger still as the world's No2 economy shows growing signs of struggling to maintain the momentum of the past three decades.

The growth sparked by the export and investment-oriented opening-up policies launched by Deng Xiaoping has gradually become overshadowed by the problems of overcapacity, inefficiency, pollution and income inequality that pose major challenges to the mainland's long-term economic and social stability.

The scale of the problems is matched only by the enormity of the reform needed to solve them.

Making matters worse for Li is that some of the more stubborn resistance he might face could come from his subordinates, including two of the top three financial industry regulators.

When Li unveiled the milestone plan to create a Hong Kong-like free-trade zone in Shanghai, he faced strong opposition from conservative officials who were worried that opening up the financial services sectors to foreign investors would put national financial industry security under threat.

Shang Fulin, the chairman of the China Banking Regulatory Commission, initially opposed to Li's plan to open up the banking sector in the free-trade zone to foreign players, although he eventually compromised after months of negotiations.

Li's determination to launch the free-trade zone in Shanghai, which opened for business officially at the end of last month, is not the last struggle he is set to have with his ministers.

He is also believed to be a supporter of reforms to allow private companies to set up their own banks to compete with the Big Four. Bankers believe the CBRC was decidedly reluctant to bring in new players from the private sector.

Market participants initially expected the first batch of private banks to be operating before the end of this year. Early next year now seems more likely, and it could be even later.

The securities industry is another area where Li must expend effort negotiating with subordinates, including Xiao Gang, who became chairman of the China Securities Regulatory Commission earlier this year. Xiao was against Li's idea to lift a ban on foreign commodities exchanges setting up their own futures delivery warehouses in the free-trade zone in Shanghai.

"Setting up futures delivery warehouses in the Shanghai free-trade zone can replace the functions of those warehouses in South Korea's Busan and Singapore to a very large extent, and the plan can also reduce the trading costs of Chinese enterprises," said a memorandum sent from the premier's office to the CSRC in July.

But that proposal never made it into the final plan and all signs from government officials are that the ban will remain in place for the foreseeable future.

That is doubtlessly a blow to Hong Kong Exchanges and Clearing, which spent US$2.2 billion buying the London Metal Exchange last year with one rationale being that bringing the LME direct to the mainland would make great economic sense.

Li's latest speeches on the economic outlook show no let-up of the reform rhetoric, although they have been light on specifics, signalling that there is still a lot left to be decided heading into the third plenum.

"Based on the facts that we've seen about these complicated internal negotiations back and forth, people may naturally ask how powerful Li as the premier can be. Perhaps after the third plenary session, you may say the bigger expectation you have, the bigger disappointments it will turn out in the end," said the first source.

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bpoon1pc
The completion of the first 35 years reform (1978 - 2013) and the beginning of the second 35 years reform is not a matter of choice but a matter of how. The pressure is not only from the top and the wishes of central government but from all dimension of the society. Current pace and way of economic reform driven by heavy infrastructure investment and capacity expansion in low-tech industry and property development is not sustainable. The seond 35 years reform will be very different. Preimer Li is just starting the game and it is very possible that he will be pushed back. But.. something are crystal clear - environment, high-tech, food safety and the creation of 600 million of new middle class to drive consumption demand are top priorites in China nobody can deny. The free-trade zone in Shanghai is only the first experiment to stimulate the discussion on how to deepen the reform. Coal, steel, cotton and most industries will be transformed with uncompetitive players exit and overall capacity will be reduced. The banking, securities reform will be implemented in the next phase as they are more sensitive and controled directly by central government or state own companies.
 
 
 
 
 

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