Chinese central banker’s proteges are positioned to carry on his reformist baton

As the retirement of People’s Bank of China Governor Zhou Xiaochuan approaches, his legacy of financial reform may yet live on through the advancing careers of people he’s helped guide to prominence.

The latest examples of that phenomenon are five officials, associated with Zhou and seen as like-minded reformers, who were promoted since 2015 to key posts at the central bank, market regulators and even the International Monetary Fund. They include Zhang Xin, deputy head of the State Administration of Foreign Exchange and Li Bo, director general of the PBOC’s monetary policy department.

“These appointments at least partially reflect Zhou’s intention to ensure his legacy of liberal reform be maintained after he steps down,” said Feng Hui, co-author of ‘The Rise of the People’s Bank of China.’ “All the appointments help bring international visions to mid-level management.”

Since taking the central bank’s reins in December 2002 -- back when Alan Greenspan was leading the US Federal Reserve -- Zhou has steered the nation through global crises, overhauled monetary policy tools, ended a direct peg to the dollar, abolished a cap on deposit rates and overseen the elevation of the yuan to reserve-currency status.

Zhou bucked expectations he would leave back when he was 65. Instead he was promoted, taking on the title of vice chairman of the Chinese People’s Political Consultative Conference, where the retirement age typically is 70. Zhou turns 70 in January.

While the five men’s careers have intertwined with Zhou, there’s no way to know what hand the PBOC governor played in their recent promotions.

Xuan Changneng, the third member of the five, was promoted to assistant to the chairman at the China Securities Regulatory Commission in August last year. Like Zhang Xin, he returned from overseas to join Zhou when he led the securities watchdog in 2000.

Xuan “responded to the call of the then-CSRC chairman Zhou,” according to an article on the alumni association’s website of the University of Science & Technology of China, where Xuan studied as an undergraduate.

In 2015, Li Bo was appointed director general of the central bank’s monetary policy department, which advises on rates settings and manages day-to-day liquidity operations. He had joined Zhou at the PBOC in 2004, and subsequently helped draft laws on anti-money laundering and foreign exchange management.

Read: The man who pushed for a global yuan -- China’s central bank governor Zhou Xiaochuan

“Zhou’s approaching the retirement age limit and the appointment of many of his proteges into key posts is also a strong indication he won’t stay around,” said Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing. “This is often what happens when a senior leader departs.”

Li Bo, Zhang Xin and Lu Lei are rising stars within the central bank with widely acclaimed expertise and experience that will help maintain the momentum of exchange rate, yuan liberalisation and broader financial deregulation, said Feng, a senior research fellow at the Griffith Asia Institute in Queensland, Australia.

The PBOC and the CSRC didn’t respond immediately to Bloomberg’s faxes seeking comment on the officials. The IMF said Zhang isn’t in a position to comment. Bloomberg hadn’t received any comment from SAFE at the time of publication.

As the central bank shifts toward a monetary policy framework that isn’t tied to a pegged exchange rate, and as the economy becomes larger and more complex, the experts Zhou has fostered will become crucial for the PBOC to do its job effectively, said Eswar Prasad, a former chief of the International Monetary Fund’s China division.

Zhou may view it as an important part of his legacy to strengthen the personnel ranks at the PBOC and to prepare the institution well if it gains greater operational independence, said Prasad, now a professor at Cornell University in Ithaca, New York.

In China’s top-down system there’s a limit to what technocrats can achieve. The central bank operates under the State Council, which sets policies including interest rates, leaving it with less autonomy than U.S. and European counterparts. To help cement Zhou’s legacy after he departs, they’ll need the aid of another reformist governor.

China Banking Regulatory Commission Chairman Guo Shuqing is Zhou’s most likely successor because he combines top-level financial industry experience and political heft, said Feng. Guo was previously governor of Shandong province and chairman of both the securities regulator and China Construction Bank. One of Zhou’s deputies, Yi Gang, and Jiang Chaoliang, the party secretary of Hubei, are among other contenders.

Some of Zhou’s liberalization goals have recently taken a back seat in the name of stability. Foreign exchange controls were tightened to stem an exodus of capital, and authorities have kept a tight rein on the yuan.

“It is still unclear to me whether President Xi Jinping has the intention to push for further reforms,” Feng said. The general mood is for stability rather than development, suggesting the brakes are on further liberalisation, he said.

Below are some of the academic and career details of Zhou’s proteges:

• Zhang Xin (張新) has a PhD from Columbia University and previously worked for Merrill Lynch and the World Bank. He helped develop financial regulations for Shanghai’s Free-Trade Zone from its PBOC branch from 2009.
• Lu Lei (陸磊) joined the PBOC in 1995 and stayed until 2003, winning the prestigious Sun Yefang Economic Science Award for a paper on financial corruption. After a stint at China Merchants Bank Co. and a decade in academia in Guangdong, he returned to the central bank in 2014 as director of its research bureau, and was then promoted to director of the financial stability bureau last year before joining SAFE.
• Xuan Changneng (宣昌能) worked for JPMorgan Chase & Co. after gaining a PhD in finance at the University of Texas at Austin in 1997. He joined China Construction Bank in 2004, where he was involved in efforts to bring in strategic investors, and subsequently worked for private equity firm JC Flowers & Co.
• Zhang Tao (張濤) has an MA and PhD in international economics from the University of California, Santa Cruz, and previously worked for the World Bank and Asian Development Bank. Before being promoted to deputy governor at the central bank, he held posts including vice director of the research bureau, director of financial surveys and statistics, director of the international department and director of legal affairs.
• Li Bo (李波) received a PhD in economics at Stanford University and a JD in law from Harvard, and thereafter worked at law firm Davis Polk & Wardwell, according to Caijing magazine. He joined the central bank’s legal affairs department as deputy head in 2004 and was promoted to its head in 2009.