Reform, caution for China's economic team

China filled out Premier Li Keqiang's economic team, installing sovereign wealth fund chief Lou Jiwei as Finance Minister while retaining Zhou Xiaochuan as central bank governor.

China filled out Premier Li Keqiang's economic team, installing sovereign wealth fund chief Lou Jiwei as Finance Minister while retaining Zhou Xiaochuan as central bank governor.

Gao Hucheng, 61, will be Commerce Minister after the National People's Congress approved his appointment in a vote in Beijing. Xu Shaoshi, 61, will head the National Development and Reform Commission, the economic planning agency.

The leadership line-up is a mix of "activist reformers" such as Mr Zhou and Mr Lou and more cautious officials like Zhang Gaoli, the Politburo Standing Committee member today appointed as the most senior Vice-Premier, according to Yukon Huang, a former World Bank country head for China. At stake is the speed of policy moves to contain credit and property-price risks, deepen a shift towards free markets, and limit a slide in growth after last year's 7.8 per cent expansion, the least since 1999.

"The short-term challenge is how to suck the oxygen out of shadow financing and the property market without sucking the oxygen out of the economy," said Alistair Thornton, a Beijing-based economist at IHS Inc. "Long-term, it's about how to reduce the state's hold over the economy, which increasingly is jeopardising the sustainability of growth."

Politburo members Wang Yang, the former Communist Party secretary of Guangdong, Liu Yandong and former state planner Ma Kai were also named as vice-premiers. One of those officials, who are ranked higher than ministry heads, is likely to serve as counterpart to US Treasury Secretary Jacob Lew, due to visit Beijing on Tuesday and Wednesday.

The world's second-biggest economy faces a rising risk of a financial crisis because of excessive credit, elevated property prices, declines in the labour force and limited productivity gains, Nomura Holdings said. A slowdown in "reform momentum" after China joined the World Trade Organisation in 2001 is holding the nation back, the investment bank said.

The government has avoided difficult changes "such as moving to a fully market-based monetary policy framework and opening up the service sector that is monopolised by the state-owned enterprises," said Zhang Zhiwei, chief China economist at Nomura. "The key to China's future is reform, which usually only happens when the pressure to act has built to intense levels."

The Shanghai Composite Index is down more than 6 per cent from this year's February 6 peak, on concerns that monetary tightening and property curbs will slow expansion.

Mr Zhou's role may signal that the new Communist Party leadership will press on with loosening controls on interest rates and expanding international use of the yuan. Mr Li became Premier on Sunday, while Xi Jinping replaced Hu Jintao as president on March 14.

Mr Lou, 62, may be the new appointee with the highest international profile, after overseeing purchases including a stake in Morgan Stanley as founding chairman of sovereign wealth fund China Investment Corporation. In January this year, he said the fund was trying to cut an "over-reliance on US debt".

"Lou will enhance China's influence in multilateral institutions," said David Loevinger, former senior co-ordinator for China affairs at the US Treasury Department.

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