NPC 2018: Yi Gang, China's first new central bank governor in 15 years

Deputy central bank governor of the People's Bank of China Yi Gang at a news conference during the ongoing National People's Congress (NPC), on March 10, 2017.
Deputy central bank governor of the People's Bank of China Yi Gang at a news conference during the ongoing National People's Congress (NPC), on March 10, 2017.PHOTO: REUTERS

BEIJING (BLOOMBERG) - China named Yi Gang to run its central bank, elevating a long-serving deputy governor with deep international links to the forefront of efforts to clean up the nation’s financial sector and modernise monetary policy. 

The National People’s Congress, China’s legislature, voted Monday to approve President Xi Jinping’s choice for governor of the People’s Bank of China.

Liu He, Xi’s top economic adviser, was named as a vice-premier, signaling that he will take the lead role in policy-making with Yi in support. 

By promoting an official who has served as No. 2 to incumbent governor Zhou Xiaochuan for more than a decade, China is signalling that it is seeking policy continuity at the central bank.

Now set to retire, Zhou, 70, has steered the institution through the global financial crisis, overhauled monetary policy tools and overseen the elevation of the yuan to reserve-currency status during his record 15-year term.

Speaking on Bloomberg Television on Sunday, US Treasury undersecretary for international affairs David Malpass said Yi is a "very strong technical leader with lots of skills" and that the US looks forward to a "strong dialogue with the leaders that China designates."

Yi, 60, inherits an institution that, while more influential at home and abroad than the one that Zhou took over in 2002, faces much more complex challenges. The most pressing will be pushing forward with Xi's financial cleanup without crashing an economy that's heading towards a debt-to-output ratio exceeding 300 percent.

The PBOC faces those tasks at a time of major institutional changes. China this month merged its bank and insurance regulators, a move that gave the central bank power to write rules for the financial sector, and likely makes it the most powerful body in the new Financial Stability and Development Committee.

 

Still, as the next vice premier in charge of financial and economic policy is widely expected to be Liu He, Yi's appointment to the PBOC role signals that the central bank will be run by a tested official while overall policy direction will be set by Xi's top economic adviser.

"We can expect more continuation of Governor Zhou's approach to monetary policy and financial regulation," said Chen Zhiwu, an economics professor at the University of Hong Kong and a former adviser to China's State Council, or Cabinet.

"Wall Street should be happy, at least as far as policy matters are concerned that are within the PBOC's control."

The succession comes amid changes atop global central banks and their shift away from years of easy money. Jerome Powell succeeded Janet Yellen as Fed chair in February and Bank of Japan Governor Haruhiko Kuroda is set to begin another term. And though European Central Bank President Mario Draghi doesn't conclude his time in office until late next year, jostling over his replacement has already begun.

Yi faces an immediate task of calibrating the PBOC's response to monetary policy normalization in the US.

"China's monetary policy should be mainly based on domestic economy and finance situations. We need to consider it comprehensively," Yi said at a press conference on March 9 when he was asked about whether the PBOC will follow prospective Fed rate hikes.

Yi joined the central bank in 1997 and served in a succession of roles before promotions to deputy governor and administrator of the State Administration of Foreign Exchange. As head of the currency regulator, he presided over expansion of the world's largest foreign reserve stockpile, which peaked in 2014 at nearly US$4 trillion, along with more loosening of currency trading restrictions and greater emphasis on increasing the yuan's international use.

Like Zhou, Yi is a fluent English speaker with longstanding links to global economic leaders. Yi earned a business degree at Hamline University in St. Paul, Minnesota, and a Ph.D. in economics at the University of Illinois before moving to Indiana University at Indianapolis as a professor in 1986, according to his official PBOC biography. 

While lacking the independence afforded the leadership of most major central banks, Yi will influence decisions that help shape the global financial landscape in an economy that contributes about a third of world growth.

He'll need to keep an eye on inflation that's forecast to accelerate this year and guard against the risk of a resurgence of destabilizing capital outflows.

What's more, he also must improve communication to global investors and the bond market while pushing for China to have a bigger role in global institutions such as the International Monetary Fund.

The economy proved surprisingly strong last year, posting the first full-year acceleration in growth since 2010.

The new leadership comes at a time of heightened awareness of the risks facing the economy, from a broader trade-war with the US to a long-feared financial blowup. Even without a negative shock, economists see the effects of the government's campaign to rein in credit and slow the property market as taking an inevitable toll this year. Gross domestic product growth is seen slowing to 6.5 percent, according to estimates compiled by Bloomberg.

At a tricky time, Yi's appointment represents stability, Hung Tran, executive managing director at the International Institute of Finance, said in an interview in Buenos Aires.

"The Chinese leadership in the past year or two began to focus on the need to slow down the growth of credit, particularly in the non-banking sector," he said.

Yi "has a very good understanding of the issues and has a forthright approach, and has an open mind discussing issues. I think that's much appreciated."