What a possible leadership shake-up at PBOC may mean for policy

BEIJING – The People’s Bank of China (PBOC) may have two new officials leading the central bank following a reshuffle of government positions in March.

Governor Yi Gang is widely expected to step down, potentially paving the way for veteran banker Zhu Hexin to take his place, according to a person familiar with the matter. The man likely to be China’s new vice-premier in charge of economic policy, Mr He Lifeng, is also being considered for the role of party secretary at the PBOC, the Wall Street Journal reported.

The reported changes may not signal a major shift in monetary policy, economists and analysts say, instead affirming recent indications that the central bank will become a bit less hawkish in terms of cracking down on debt and financial risks, and continue to pursue some reforms already signalled. 

While the changes are not final yet, here is a look at what analysts say may be some of the implications for the PBOC.

Mr Christopher Beddor, deputy China research director at Gavekal Dragonomics, said the next PBOC leadership would likely “nudge the central bank in a less hawkish direction”.

“It’s really hard to imagine just about any successor who would be as hawkish on monetary policy and banking regulation as Guo Shuqing,” Mr Beddor said, referring to the PBOC party chief and banking regulator who went on a crusade to clean up the banking industry.

“He Lifeng is at core a local government official who has spent most of his career trying to develop local economies, sometimes with substantial infrastructure-building,” Mr Beddor added. “That’s perfectly understandable, but it also means he might not bring the same level of vigilance about the dangers of debt as Guo Shuqing or (outgoing Vice-Premier) Liu He.” 

Mr Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank, does not expect major changes in monetary policy.

“Monetary policy will likely continue in the reform direction that has already been set, and won’t be subject to a completely new thinking or any dramatic change,” he said. “The basic direction for the setting and implementation of monetary policy has already been confirmed.”

The PBOC is still in the process of reforming and liberalising its interest rate and exchange rate systems, even after making some major progress over the past few years. The central bank has also been elevating the role of structural monetary policy tools, while strengthening a framework that tightened the screws on the lending behaviour of banks, thus reining in risks.

The potential installation of senior political officials at the central bank has stirred speculation about what consolidated decision-making would mean. But the reported moves could actually usher in more pragmatic policy, according to Mr Gabriel Wildau, a managing director at advisory firm Teneo Holdings.

“China’s central bank has never been politically independent, not even a little, so these reported personnel appointments wouldn’t mark any change in that respect,” Mr Wildau said. He added that the Politburo would “as always” need to approve major shifts in monetary policy. 

Installing a Politburo member as PBOC party secretary “could even inject a greater degree of political pragmatism”, he added, given that Mr Guo was never part of that the top decision-making body.

Foreign observers tend to view the dynamics around central bank policymaking in terms of “pro-reform” technocrats facing off against “compromised politicians”, Mr Wildau said. But he argued that the recent housing market crackdown “seemed to be driven largely by relatively doctrinaire PBOC officials who had been warning for years about a bubble and finally saw their opportunity to deflate”.

“In retrospect, some pragmatic political intervention earlier on might have been better,” he said. BLOOMBERG