Xi’s economic team well qualified to tackle looming trade war

Vice-Premier Liu He and central bank chief Yi Gang will have to placate Washington even as they execute the president’s domestic economic agenda, which is no small task given the current state of the Sino-US relationship

PUBLISHED : Tuesday, 03 April, 2018, 1:40am
UPDATED : Tuesday, 03 April, 2018, 2:10am

For neutral observers of the most important bilateral relationship in the world today, recent news out of Washington has been alarming. On the other hand, developments in Beijing should at least offer some comfort. From foreign policy to trade, hawks have replaced moderates as the top policymakers at the White House under US President Donald Trump. A potential trade war is looming. So there is at least some reassurance that President Xi Jinping has put together a new economic team headed by Liu He.

As the new vice-premier, Liu has already been dubbed the “economic tsar”. Meanwhile, Yi Gang, a US-trained economist, has replaced the highly regarded Zhou Xiaochuan as head of the central bank. Both men are seen as reform-minded, but have their work cut out for them.

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Liu has made it clear that Beijing wants to compromise and avoid conflicts with the US, though not at the expense of China’s own economic interests. He headed to Washington last month to try to defuse tensions and is now in close touch with US Treasury Secretary Steven Mnuchin to find common ground.

When he led the Chinese delegation to the World Economic Forum in Davos, Switzerland, this year, he promised that Xi would launch a reform drive that would exceed “the international community’s expectations”.

Needless to say, placating the Americans and liberalising the domestic economy are intricately linked. Liu has warned against using loose monetary policy to stimulate growth, a strategy China employed during the first few years of the global financial crisis a decade ago.

In this, he is in full agreement with Yi. Both men have vowed to rein in rising debt and the associated risks in the financial and banking sectors. They are following the new policy template laid down by Xi, who has declared battle on three fronts – financial risk, environmental degradation and poverty.

Xi has made his intentions clear by putting the two men in charge of economic and monetary affairs, respectively. As head of the newly created Financial Stability and Development Commission, Liu will coordinate policy between the central bank and financial regulators.

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The two technocrats even have similar academic backgrounds: both belonged to the first generation of students who were able to attend university when Deng Xiaoping started to open up China. Liu subsequently went to Harvard’s Kennedy School of Government, while Yi received his PhD in economics from the University of Illinois.

Just this week, Mnuchin said he was hopeful a deal could be reached to avert a trade war. A speedy resolution will not only be good for both countries, but strengthen the credibility of the men put in charge of executing Xi’s policy agenda. Deleveraging and reforming the economy, along with liberalising the yuan, will be hard work.