China economy

Liu He: China’s new one-man debt bomb disposal unit

Liu’s promotion to vice-premier cements his role as Xi Jinping’s chief economic strategist but the job also comes with a heavy responsibility

PUBLISHED : Monday, 19 March, 2018, 4:34pm
UPDATED : Monday, 19 March, 2018, 11:36pm

When an “authoritative person” declared on the front page of Communist Party mouthpiece People’s Daily in May 2016 that the days of high-speed growth were over in China, few doubted the message came right from the top.

President Xi Jinping’s right-hand man, Liu He, 66, then the director of the Office of the Central Leading Group for Financial and Economic Affairs, was widely believed to be the source of the stinging rebuke to then vice-premier Zhang Gaoli’s high-profile claims that 2016 had got off to a “good start”.

Liu was never named but he soon emerged from the shadows as one of the most influential forces in China’s economic policymaking, striding the international stage as the public face of Xi’s economic policy.

Yi Gang named China’s central bank chief, Liu He vice-premier

His appointment as vice-premier in economic and financial affairs on Monday confirms his position as the mastermind of the president’s economic strategy but also brings with it a heavy responsibility – to put theory into practice to prevent shock waves in the national – and global – economy.

Few could doubt that Liu, 66, is Xi’s most trusted adviser on economic management.

As soon as Xi was named the party’s general secretary in 2012, Liu was promoted as the director of the General Office of the Central Leading Group for Financial and Economic Affairs, the innermost economic policymaking unit directly serving Xi.

His portfolio grew rapidly, as did his international profile.

In late January, the World Economic Forum gave him the red-carpet treatment, putting him on ceremonial par with US President Donald Trump and German Chancellor Angela Merkel.

In his address to the international forum, Liu spoke with authority, promising to carry out China’s reforms with changes “beyond the expectations of the international community”.

More recently, Xi sent Liu to Washington to try to ease trade tensions with the United States after Yang Jiechi, China’s top diplomat, failed to make any ground.

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Those missions stem from Liu’s role as the architect of Xi’s supply-side structural reform theory, part of a bigger push to avoid a crisis in China’s heavily leveraged financial system.

“A new ‘Liu He cycle’ is dawning at China’s financial and monetary world,” said Tao Dong, vice-chairman for Credit Suisse Private Banking Asia-Pacific and a veteran watcher of the Chinese economy.


Liu’s first and most daunting task is to defuse China’s ticking debt bomb, which poses a big threat to China’s US$12 trillion economy.

If conventional wisdom applies, the last decade of excessive monetary easing and lax financial supervision means conditions are ripe for a financial meltdown in the world’s second-biggest economy.

Today, the country’s debt-to-GDP ratio is estimated to be 260 per cent, a dangerously high level.

Sources who have discuss the issue with Liu said he was worried about the fallout from the massive fiscal stimulus China launched in 2008 but as a senior economic policymaker, he could not express his opposition, at least not publicly, at the time.

Now, as head of the Financial Stability and Development Committee, the command centre for tackling China’s financial risks, Liu will make many of the decisions that will shape the country’s financial landscape.

In doing so, he will draw on his experience and education.

According to his official biography, Liu’s early school years in Beijing – where he reportedly lived in the same compound as Xi – were interrupted by the Cultural Revolution, a decade of violence that began in 1966.

In 1969, the then 17-year-old was sent to work in a village in the province of Jilin. He later joined the People’s Liberation Army and in 1973 started a six-year stint in the Beijing Radio Factory where he rose from a regular worker to its party secretary.

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In 1979, Liu was admitted to Renmin University in Beijing to study industrial economics, graduating to become a teacher at the university and acquiring a master’s degree.

He then launched his career as a government think-tank researcher, joining the State Council’s Development Research Centre in 1986 and the National Development and Reform Commission in the 1990s.

He took one year out in the early 1990s as a “visiting scholar” at Seton Hall University in the United States and another year studying international finance and trade for a masters of public administration at Harvard University’s John F Kennedy School of Government.


But one of his biggest leaps came in 2003 when he started working with General Office for the Leading Group for Financial and Economic Affairs, first as a deputy director and then as director.

As the office’s director, Liu reports directly to Xi and heads a body that has expanded from a largely behind-the-scenes advisory role to one that has overshadowed the State Council, which has been in charge of economic decision-making and implementation over the past three decades.

One official from Liu’s office said a key part of their job was “to spot risks” – Liu didn’t micromanage.

“We don’t have fixed schedules, and our job is to find problems and spot risks,” the official said. “The financial crisis in the United States fully showed that the market is not always right and the government must step in when there’s market distortion. People from other countries are often envious that we [the Chinese government] can get so many things done.”

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Last year Liu was also named as the head of the Special Leading Group on Reform of the Central Economic System and Ecological Civilisation System, a task force with an unwieldy name but a clear mission – to redesign China’s ruling apparatus in economic and environment affairs.

His role in this shake-up – the biggest in decades – was evident on March 13 in another long article in People’s Daily explaining the rationale behind the planned institutional changes and urging all departments to follow the plan.

And this time Liu’s name was on it.

“All departments and units ... must obey the central leadership’s decisions,” Liu wrote. “No compromises or delays will be allowed.”

Tao said Liu was set to become “one of the most influential vice-premiers in the history of the people’s republic” and was comparable to Zhu Rongji, who became vice-premier in 1993 and took iron-fisted measures to curb overheated investments and borrowings.

Gary Liu Shengjun, head of the China Financial Reform Institute in Shanghai, said Liu “holds similar views” as Wu Jinglian, an 88-year-old Chinese economist with liberal tendencies.

US billionaire investor Ray Dalio, whose fund manages about US$160 billion in assets, praised Liu He in a Beijing trip this year. He said Liu was “capable” and able to solve problems, having already conducted “beautiful deleveraging” in China.

But Liu will have to prove himself as a problem solver if he is to be equal to the position.

Abroad, China’s political, economic and trade relations with other major countries are becoming increasingly complex, and Liu’s task at home of containing financial risks and putting growth on a sustainable track is “an uphill battle”, according to Hu Xingdou, a Beijing-based independent economist.

How Liu He went from government researcher to Xi’s right-hand man

Liu himself said he trusted in “cautious and rational choices”.

“History may repeat itself when we find we’re at a similar crossroads,” a grey-haired Liu told the audience in Davos. “At that moment, making cautious and rational choices will be very important.”

While Liu’s power is big and his authority obvious, he appears to have little time for smaller details.

At a government conference in Beijing in 2016, Liu was left waiting when the event ended early and his driver hadn’t arrived, according to one government employee who witnessed the scene.

An official offered to call the driver or Liu’s secretary said he didn’t know the number of either.

“It seems Liu just devoted all his energy and time thinking about China’s economic situation and policies ... He just has no time for other trivial things,” the official said.

Additional reporting by Jane Cai