(Bloomberg) -- Yi Gang boasts more policy know-how than political heft as he takes the helm of the People’s Bank of China.
Confirmed Monday as successor to his long-time boss Zhou Xiaochuan, the 60-year-old Yi boasts more than two decades of experience in the central bank he will now run.
As No. 2 for more than a decade, the former Indiana University economics professor also managed the country’s foreign exchange policy from 2009 to 2016 -- a time when currency reserves were growing toward $4 trillion and China was easing trading restrictions on the yuan and increasing its international use.
What he lacks is the political standing of his predecessor, meaning he’s set to take direction from above. He was quick on Monday to signal he would maintain the PBOC’s recent policies.
The real power may ultimately lie with Liu He, President Xi Jinping’s top economic adviser, who was elevated to vice premier status, paving the way for him to effectively run China’s economy, including monetary policy and its drive to reduce risks in the banking system.
“Yi brings technical competence in areas like monetary policy, continuity from his many years in a senior role at the PBOC, and strong international credibility,” said Michael Hirson, head of China research at New York-based Eurasia Group and formerly the U.S. Treasury Department’s chief representative to Beijing. “But as a low-key technocrat, he’ll need to rely on Liu for political backing within China’s system to be effective.”
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For more on the PBOC change: Read about Zhou Xiaochuan’s legacy of reform and debtSee what economists say about Yi’s appointment Click here for a look at the big challenge facing Yi And here for a look at the PBOC’s growing global heft See how the PBOC is compared with peers size-wise Read Yi’s own words on monetary, currency policy |
Previous central bank governors often had higher political rank, experience in government posts or at the nation’s biggest financial institutions. Yi has none of those, ending a career in academia in the U.S. and at Peking University in Beijing when he joined the PBOC in 1997. In fact, he has more of an everyman character than others touted by analysts for the job --he’s been photographed practicing the martial art tai chi and in 2015 conducted an interview while entering a Beijing subway station.
The appointment comes as the final pieces of a sweeping regulatory overhaul fall into place toward the end of two-week annual conclave of leaders in Beijing, in which the central bank gained new powers as banking and insurance regulators were merged. He takes the reins just as Xi intensifies the nation’s battle against financial risks after years of credit-fueled expansion put China on track to be one of the world’s most indebted nations.
Like Zhou, Yi is a fluent English speaker with longstanding links to global economic leaders, being a frequent sight at international fora like the International Monetary Fund meetings and the World Economic Forum.
Yi received praise from officials at this week’s Group of 20 nations meeting in Buenos Aires, with both Bank of Japan Governor Haruhiko Kuroda and U.S. Treasury Under Secretary David Malpass complimenting his technical skills. Indonesia’s Finance Minister Sri Mulyani Indrawati said he’ll be a particular asset to his country in the global arena.
“Yi Gang has a very mature ability to communicate fairly effectively during the G-20,” she said in an interview on Monday. “He knows the issues and tensions of the international community toward China, but at the same time, effectively communicates China’s own reform.”
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What Our Economists Say: “Like Ben Bernanke when he took Alan Greenspan’s hot seat at the Federal Reserve, Yi has some big shoes to fill,” Tom Orlik, Bloomberg’s chief Asia economist, wrote in a note. “Also like Bernanke, Yi inherits a major problem. On Zhou’s watch, a credit bubble of epic proportions expanded. Now it’s up to Yi to manage it down.” |
In the past, Yi detailed his belief that China will ultimately be a full part of the global monetary system.
A large economy like China can’t give up monetary policy independence, Yi wrote in a 2008 paper. “Therefore, China has to choose between a fixed exchange rate and the free flow of capital; in a sense, it has to choose between stability and efficiency,” he wrote. “Over the long run, China is bound to have a free flow of capital and a floating exchange rate regime."
He 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.
At Indiana, Yi was an expert in econometric theory when he arrived in 1986. But by the time he left had converted himself into one on China’s monetary and financial industries, according to a 2012 article on its website. When visiting the university subsequently, Yi invariably said that his days there were among the happiest of his life, the article says.
Unique Animal
He won the selection for the post over candidates that analysts say included banking regulator Guo Shuqing, and Jiang Chaoliang, the Communist Party secretary for Hubei province, -- candidates with higher profiles.
“To some extent it may be a recognition of reality that the central bank is a unique animal, that you can’t just go by party loyalty,” said Andrew Polk, co-founder of research firm Trivium China in Beijing. “When it comes to monetary policy you really need to have technocratic capability.”
Yi is seen as a reform-minded technocrat in Zhou’s mold and as a tested hand to take forward monetary policy continuity. How he fares as a reformer though remains an unknown as Xi tightens Communist Party control over the economic levers of power and makes clamping down on financial risks one of three "critical battles" to ensure stability.
Since the annual Central Economic Work Conference in December, the priority of financial policy has shifted from from deregulation to re-regulation, said Feng Hui, co-author of “The Rise of the People’s Bank of China” and a senior research fellow at Australia’s Griffith Asia Institute.
Stability Concern
"The bank will certainly have some room in advocating certain liberal measures," he says. "But this has to first address the concern from the top on stability."
The main task is for the central bank to implement prudent monetary policy, push forward the reform and opening-up of the financial sector, and maintain financial stability, Yi told reporters Monday at the Great Hall of the People in Beijing following his appointment.
Yi faces those tasks at a time of major institutional changes. China this month merged its bank and insurance regulators, and gave the central bank power to write rules for the financial sector, a move that likely makes it the most powerful body in the the Financial Stability and Development Committee, a recently established cross-asset regulator.
(Updates with comments from Kuroda and Malpass in 10th paragraph.)
