‘Steady hand’: China surprisingly keeps central bank chief

BEIJING, March 12 (Reuters) – Yi Gang’s surprise reappointment as China’s central bank governor on Sunday means a pro-market mind of high international stature will continue to represent the world’s second-largest economy on the global stage.

Yi, 65, was widely expected to retire as President Xi Jinping installs close allies in key roles in a sweeping government reshuffle at the start of his unprecedented third five-year term.

A new leadership team made up mostly of homegrown talent loyal to Xi is raising concerns among the international business community amid rising tensions between China and the West over trade, technology, the war in Ukraine and other issues.

But Yi keeping his post as governor of the People’s Bank of China provides some relief as a familiar face, albeit at the helm of a scaled-down institution focused primarily on monetary policy after the launch of a new financial watchdog.

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The PBOC governor has high global exposure through institutions such as the Group of 20, the International Monetary Fund, the World Bank and others.

“Yi’s core competitiveness lies in his professional quality and international background,” Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science, told Reuters.

“The central bank governor is not a job that can easily be taken over by someone else. We need someone like Yi who can communicate on the international stage, such as the G20,” added Xu, who previously worked at the PBOC.

Yi reached retirement age and was expected to be replaced after he was dropped from the Communist Party Central Committee in October. Chinese veteran Zhu Hexin, who heads the CITIC conglomerate, was seen as the leading candidate for the top PBOC post.

Unlike Zhu, who built his entire career in China, Yi spent more than a decade in the United States, completing his doctorate at the University of Illinois and teaching at Indiana University, making him one of China’s highest-ranking “sea turtles “, as overseas returnees are called.

Yet he comes from a humble background, enrolling at the elite Peking University after spending several years in the countryside during Mao Zedong’s “Cultural Revolution”.


Yi, who helped implement major currency reforms in 2005 and 2015, has long advocated interest rate and currency liberalization. In August 2019, the PBOC replaced the benchmark bank lending rate with the market-driven prime rate (LPR).

The 2015 reform led to a wave of capital flight and currency depreciation, and China has focused on closing, rather than opening, its capital account ever since.

Yi has repeatedly warned against risks from excessive credit and money growth.

Yet China’s debt has grown at a faster rate than its economy in recent decades and is now nearly three times as large. Under Yi, the central bank has cut the reserve ratio 14 times since early 2018 and pumped more than 10 trillion yuan into the economy.

While some economists argue that inflation in China is benign because the economy’s productive capacity has better access to resources, including credit, than consumers, other economists praise Yi for keeping prices under control.

Yi’s biggest challenge remains keeping an increasingly indebted economy growing as its population declines and ages, the developed world teeters on the brink of recession and geopolitical tensions rise.

But analysts say Yi has limited room for more reforms as the Communist Party tightens its grip on the economy.

“Yi has been a steady hand in the management of politics, and the appointment underscores the importance of political stability,” said a political insider, who spoke on condition of anonymity.

“The PBOC will continue with its modest easing this year, and the possibility of rolling out major reforms is low.”

Reporting by Kevin Yao; editing by Marius Zaharia and Raju Gopalakrishnan

Our standards: Thomson Reuters Trust Principles.

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