China recently announced the appointment of Yi Gang as the new head of the People’s Bank of China (PBOC). Yi replaces Zhou Xiaochuan, who served in the role since 2008. Who is Yi, and what does his appointment signify in terms of future policy direction?
The promotion of Yi Gang is an internal one. He rose through the ranks of the PBOC and is a protégé of Zhou Xiaochuan. During his tenure as the central bank chief, Zhou was noted for his reformist policy direction in guiding monetary and economic policies of China.
{mosads}Implicit in his views, Zhou was aware of the growing risks that had developed within the China growth model, particularly as it pertains to debt. China’s rapid rise is partly attributed to the rapid increase of both private-sector and public-sector debt.
To date, it is estimated that China’s debt-to-GDP ratio stands at over 250 percent of GDP. This is seen as an alarmingly high rate of debt by any measure and one that has raised the possibility of financial crisis if not dealt with appropriately.
As a Western-trained economist who earned his doctorate in economics at the University of Illinois, Yi is well-grounded in market economics and monetary policy. Yi also spent a part of his life as a member of the faculty of the University of Indiana Indianapolis, instructing courses in economics.
Fluent in English, Yi Gang is well-equipped to assume the role as China’s central bank chief. His first order of business will be to get a handle on China’s growing debt problem and get ahead of a potential problem should any of the many variables related to the overhang of debt start to unravel.
Official policy statements from China on the debt question have vacillated between feigned indifference to acknowledge concern. A number of recent events signal a growing acknowledgement that China’s debt has become a topic of central concern and is being prioritized as one of the top three economic and development concerns of China moving forward.
The recently concluded National People’s Congress resulted in a reshuffling of key leadership positions at the highest levels of China’s government. President Xi Jinping successfully pushed through the abandonment of term limits, paving the way to possible lifetime tenure as China’s supreme leader.
Also noteworthy was the appointment of Liu He as vice premier of economic and financial affairs. Liu He joins the ranks of Xi’s inner circle and has been empowered to be the most senior voice on China’s economic and financial policies. Central bank chief Yi Gang now reports to Liu He.
Looming on China’s horizon are a number of economic and international challenges, any one of which convey significant potential impact. First, there is a growing realization that the stability and continuity of U.S.–China trade relations are entering a new era.
Since the 1980s, China has come to expect free and unlimited access to America’s vast consumer market. Such assumptions can no longer be relied on as the Trump administration dials up trade restrictions and the prospects of increased tariffs on imports from China.
What was viewed as campaign rhetoric is turning into reality as President Trump has signed into action restrictive tariffs on Chinese steel and aluminum. President Trump has also announced the imposition of an additional $50-$60 billion of tariffs targeted at Chinese goods through the use of Section 301 of the Trade Act of 1974.
As the trade-hawk wing of the Trump administration gains greater voice in formulating U.S.–China trade policy, the bewilderment of Chinese policymakers has grown.
As a result, President Xi and his inner circle must anticipate and prepare for other uncertainties that may individually or collectively set in motion undesirable forces within China’s economy.
In light of these changed circumstances, President Xi is making moves to get his house in order. Tackling China’s debt problem is high on the list of priorities. In order to solve this, he’ll need to bring in his “A-Team.” Concentration of authority in the hands of Liu He and Yi Gang signals Xi’s intent to do just that.
Arthur Dong is a professor at Georgetown University’s McDonough School of Business. He specializes in legal and business engagements between China and the United States.