China’s ‘two sessions’ 2023: central bank, finance chiefs retain spots in cabinet shake-up
- Legislature confirms top roles for Yi Gang and Liu Kun as authorities confront financial headwinds
- Age and political status are becoming less of a factor in cabinet appointments, analyst says
China’s legislature has kept the leading roles at the central bank and the Ministry of Finance unchanged, retaining two key members of the new government’s economic hierarchy as the country looks to double down on curbing stubborn financial risks and technological bottlenecks during President Xi Jinping’s third five-year term.
Also confirmed as vice-premiers were Ding Xuexiang, He Lifeng, Zhang Guoqing and Liu Guozhong. And Zheng Shanjie was confirmed to replace He as chairman of the National Development and Reform Commission, the top economic planner.
The ministers for commerce, industry, agriculture, education and technology will also stay in the new cabinet.
Analysts say the new financial line-up will have to continue the arduous task of defusing deep-seated problems in the world’s second-largest economy, managing the fallout from overseas policies, and cultivating the country’s technological ambitions.
But Beijing’s decision to keep the old hands has largely been received positively by the market.
“The [European Union] business community is very pleased that experienced and trusted interlocutors stay in important positions in these difficult times,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China.
More will be required from Beijing if authorities hope to fully re-engage with global investors
Brock Silvers, chief investment official with Kaiyuan Capital in Hong Kong, said markets had become increasingly pessimistic in the face of Beijing’s assertions of control over the economy, so “the reappointments seem to be intended as an olive branch to investors”.
“Yi Gang at the [People’s Bank of China] should be particularly reassuring, as it was strongly assumed that he would retire,” Silvers said. “Nonetheless, the reappointments probably can’t fully negate increased investor concerns. More will be required from Beijing if authorities hope to fully re-engage with global investors.”
The team is also expected to usher in advances in overseas use of the yuan, digital currencies and international payment systems, under the umbrella of “development security”.
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But there are still doubts surrounding the prospect of reforms, with the Communist Party having the final say as it is preoccupied with de-risking.
“Though fiscal reforms are surely needed, they will not be led by [the Ministry of Finance]. Nor will financial reforms come from the [People’s Bank of China],” said a foreign economist and long-time China watcher who spoke on condition of anonymity.
Wang Jun, chief economist at Huatai Asset Management, said cabinet officials are increasingly being seen as implementers, with their age and political status less of a consideration.
“The [nominees] are capable technocrats. This also reflects the intention of top leaders to maintain policy continuity and stability,” he said.
Yi, 65, a former associate professor at Indiana University-Purdue University Indianapolis and professor at Peking University, refrained from big stimulus during his tenure as governor and held consumer inflation at only 2 per cent last year, in sharp contrast with the 40-year-high inflation seen in most Western countries.
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“Senior positions such as central bank governor should have solid macroeconomic training and a deep understanding of modern monetary policies. Otherwise, they’d be prone to making mistakes,” said Chen Zhiwu, a finance professor at the University of Hong Kong.
Chen said Beijing’s improvement of financial oversight might make the regulatory regime more efficient, but it would also reduce the leeway for financial reform and innovation, and it could also usher in new risks over the next few years.
“Financial practices may turn highly homogeneous at the national level and across the country,” he said. “The financial resonance of various regions, if economic problems occur, would make macroeconomic and financial risks even greater.”
Beijing has made the prevention of systemic financial risks a top priority since 2018.
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To that end, regulators coordinated by the Financial Stability and Development Commission dismantled the financial empire of tycoon Xiao Jianhua, restructured national joint-stock bank Hengfeng and financially troubled small banks, and shut down thousands of peer-to-peer lending platforms that left behind piles of bad debt.
Xi, meanwhile, has continued to flag great concerns about financial risks.
At the closed-door central economic work conference in December, he specifically mentioned financial risks associated with the property market crisis and government debt.
He also raised the alarm about financial risks in a meeting with political advisers attending the “two sessions” last week, highlighting the threat of a “detonation” from corruption and inadequate supervision.
In its annual macroeconomic policy assessment report, released online on Thursday, the Chinese Academy of Social Sciences’ Institute of Economics warned that systemic financial risks and instability were rising, while some small and medium-sized financial institutions faced threats to their liquidity.
“As for now and the foreseeable future, it is necessary not only to prevent the risk of excessively rising macro-leverage ratios, but also to guard against the risk of deleveraging caused by large fluctuations in housing prices,” the report said.
The government’s annual economic planning report, released a week ago, already described the external environment as unstable, uncertain and unpredictable. “Financial risks are on the rise, and fluctuations in global financial markets are intensifying. Cross-border, cross-market and cross-sector risks have become more interrelated,” it warned.
As part of efforts to contain that risk, the authorities have announced plans to restructure the regulatory regime, including the creation of a national financial regulatory administration.
Raymond Yeung, chief Greater China economist at ANZ Bank, said: “The institutional reshuffle has strengthened Beijing’s direct control of the whole financial system.
“It is also a sign that de-risking will enjoy a high priority over the coming years.”
Overseas investors owned about 3.2 trillion yuan (US$461 billion) worth of the A-share market by the end of last year, or about 4 per cent of the total, while they also owned 3.39 trillion yuan worth of Chinese bonds – or 2.7 per cent of the total.
Regulators are expected to continue de-risking in key institutions this year as bad assets have accumulated; to take concerted regulatory action with the enactment of a financial stability law this year; and to monitor potential negative spillover effects from international markets closely, according to a report released by Bank of China on Thursday.
Externally, “China should speed up the establishment of dynamic response plans and continue to improve the risk monitoring and early warning system”, it said.
