Tough tasks await next PBOC head

The next governor of the People's Bank of China is likely to have got there by first becoming the head of one of the country's big state-owned lenders. His initial task? To curb the power of those very banks.

Among the hot candidates are Xiao Gang, 54, the chairman of Bank of China; Guo Shuqing, 56, the chief securities regulator chief and former chairman of China Construction Bank; and Shang Fulin, 61, the top banking regulator and former president of Agricultural Bank of China. All are newly elected members of the Communist Party Central Committee, which is a prerequisite for becoming a central bank chief.

Zhou Xiaochuan, who has headed the central bank for a decade and is fluent in English, has arguably been its most popular chief yet in international circles. He has earned high marks at home and abroad for engineering monetary policies to support the world's second-largest economy while combating inflation. He also won plaudits for his efforts to ease control of the interest-rate and exchange-rate systems, as well as for progress in further opening the capital account and boosting the yuan's global role.

Now approaching 65, the typical retirement age for officials, Zhou is expected to step aside early next year. He will leave a number of key reforms yet to be implemented.

At the top of his successor's to-do list will be the further liberalisation of the interest-rate regime. China took a step in this direction in June when it granted banks more flexibility to set rates. But the next person to sit in Zhou's chair is expected to go much further by removing the ceiling for deposit rates and the floor for lending rates, creating an environment to allow banks to compete with each other by setting rates based on their own risk assessments.

"Interest-rate liberalisation lies at the heart of China's financial reforms," say economists at HSBC, who predict it may take the country three years to complete the process.