Ousted finance minister known for tough reforms

Mr Lou was just three years into the usual five-year term as finance minister.
Mr Lou was just three years into the usual five-year term as finance minister.

The sudden removal of China's high-profile finance minister this week has caught many by surprise, but some said it may not be unreasonable.

Mr Lou Jiwei, who will turn 66 next month, is at the age when ministerial-level officials normally retire. It could be part of the reshuffle ahead of next year's leadership transition, say observers.

Still, many did not expect the outspoken reformist to be taken out after just three years on the job, especially at a time when China is grappling with a slowing economy.

According to Chinese media, Mr Lou is seen as a competent policymaker who has pushed through reforms in areas such as local government debts and value-added tax.

"This is a major earthquake," said economist Yuan Gangming from Tsinghua University, adding that it is "an unusual move" as Mr Lou had not served the full five-year term.

"He's the best and the most qualified official that I've seen. A rare breed," said Dr Yuan.

Mr Lou is succeeded by Mr Xiao Jie, 59, a former top tax administrator who spent 23 years at the finance ministry before being appointed the vice-governor of central Hunan province in 2005.

Many analysts agree that Mr Lou's vocal nature and penchant for driving tough reforms may have caused his downfall.

In April last year, he told an academic forum in Beijing "there is a 50 per cent chance China will slip into the middle-income trap", that is, be stuck at the middle-income level of development. This, said Dr Yuan, "implies that there's a 50 per cent chance that current economic reforms will fail", calling into question the effectiveness of the existing policies. Analysts have since then predicted that Mr Lou may not keep his job for long, Dr Yuan added.

Pushing for unpopular policies such as the introduction of property tax could also be behind Mr Lou's abrupt departure. In July, at a meeting of the Group of 20 finance ministers in Chengdu, Mr Lou said he was determined to proceed with property tax reforms "without hesitation".

These are opposed by groups with vested interests that want to use land sales and the property market to drive short-term growth. His exit means he has lost the tug-of- war with these groups, say analysts.

But Professor Cao Heping from Peking University's School of Economics thinks his removal will help bring a whiff of fresh air to the stagnating reforms.

Mr Lou is a technocrat groomed during a period of high growth in the 1990s to 2000s but "we are now in the age of rapid changes", said Prof Cao. "His lack of innovative ideas has set the structural reforms back by at least nine months."

Mr Xiao, on the other hand, has technical expertise and experience in local government, which could help him have a more comprehensive overview of the Chinese economy, said Prof Cao.

A version of this article appeared in the print edition of The Straits Times on November 10, 2016, with the headline 'Ousted finance minister known for tough reforms'. Subscribe