By Kevin Yao
BEIJING, March 12 (Reuters) - Yi Gang's surprise
re-appointment as China's central bank governor on Sunday means
a pro-market mind of high international stature will continue to
represent the world's second-largest economy on the global
stage.
Yi, 65, was widely expected to retire as President Xi
Jinping installs close allies in key roles in a sweeping
government reshuffle at the start of his precedent-breaking
third five-year term.
A new leadership team, formed mostly of home-grown talent
loyal to Xi, raises concerns among the international business
community amid rising tensions between China and the West over
trade, technology, the war in Ukraine and other issues.
But Yi retaining his post as the governor of the People's
Bank of China provides some relief as a familiar face, albeit at
the helm of a diminished institution, focused mainly on monetary
policy after the launch of a new financial watchdog.
The PBOC governor has high global exposure through
institutions such as the Group of 20, the International Monetary
Fund, the World Bank and others.
"Yi's core competitiveness lies in his professional quality
and international background," Xu Hongcai, deputy director of
the economic policy commission at the state-backed China
Association of Policy Science, told Reuters.
"The central bank governor is not a job that can be easily
taken over by someone else. We need someone like Yi who can
communicate on the international stage, such as G20," added Xu,
who has previously worked at PBOC.
Yi reached retirement age and was expected to be replaced
after he was dropped out of the Communist Party's Central
Committee in October. Veteran Chinese banker Zhu Hexin, who
heads the CITIC conglomerate, was seen as the leading candidate
for the top PBOC post.
Unlike Zhu, who built his entire career in China, Yi spent
more than a decade in the United States, completing his
doctorate at the University of Illinois and teaching at Indiana
University, making him one of China's highest-ranking "sea
turtles", as overseas returnees are called.
Still, he comes from a humble background, enrolling at the
elite Peking University after spending several years in the
countryside during Mao Zedong's "Cultural Revolution".
REFORM-MINDED
Yi, who helped implement major currency reforms in 2005 and
2015, has long advocated interest rate and currency
liberalisation. In August 2019, the PBOC replaced benchmark bank
lending rates with the market-driven loan prime rate (LPR).
The 2015 reform led to a wave of capital flight and currency
depreciation and China has focused on sealing, rather than
opening, its capital account since.
Yi has repeatedly cautioned against risks from excessive
credit and money growth.
Still, China's debt has risen at a faster pace than its
economy in recent decades and is now almost three times as
large. Under Yi, the central bank has cut the reserve ratio 14
times since early 2018, pumping more than 10 trillion yuan into
the economy.
While some economists argue that inflation in China is
benign because the economy's productive capacity has better
access to resources, including credit, than the consumers, other
economists praise Yi for keeping prices under control.
Yi's main challenge remains to keep an increasingly indebted
economy growing, while its population declines and ages, the
developed world is on the brink of recession, and geopolitical
tensions mount.
But analysts say Yi has limited room for more reforms as the
Communist Party tightens its grip on the economy.
"Yi has been a steady hand in managing policy and the
appointment underlines the importance of policy stability," said
a policy insider who spoke on condition anonymity.
"The PBOC will continue with its modest easing this year,
and the possibility of rolling out big reforms is low."
(Reporting by Kevin Yao; editing by Marius Zaharia and Raju
Gopalakrishnan)
