26 February 2008

FT: Reformer to head China’s finances

China has settled on a new top leadership team for the finance industry, headed by Wang Qishan, an incoming vice-premier with a strong track record in forcing through reforms in the banking and securities sectors.

Mr Wang’s appointment as vice-premier will be formalised at the annual session of the National People’s Congress in early March, which will oversee the inauguration of a new government.

Although many ministers and three out of the four vice-premiers have been changed, Mr Wang is expected to maintain a stable set of regulators under him in the finance sector. Most important is the retention of Zhou Xiaochuan as the governor of the People’s Bank of China, defying widespread speculation in recent months he would be shifted.

Mr Zhou has come under attack on numerous fronts in recent years from opponents and has felt personally frustrated by the opposition to many of his policies.

But he and the central bank appear to have got their way in recent months on one key issue, the currency, which has been strengthening at a faster rate, something the bank has long sought.

Mr Zhou’s currency push has faced stiff resistance within the bureaucracy, but his opponents have been partly disarmed by the policy’s success. The stronger currency has had none of the deleterious effects that critics warned of, such as harming employment-intensive export industries and causing financial instability.

Although it is not clear why Mr Zhou’s fortunes have been revived since late last year, his experience and standing may have enhanced his position at a time of global financial turmoil.

“It would be very bad timing to change him now,” said one official.

Mr Wang was instrumental in the formation of China’s first fully fledged investment bank, a joint venture with Morgan Stanley, when he headed China Construction Bank, in the mid-1990s. He also helped usher in pioneering domestic brokerage ventures in recent years run by Goldman Sachs and UBS, when he was a senior official in Hainan and Beijing, respectively.

People who know Mr Wang say he is cut from the same cloth as the tough-talking Zhu Rongji, the former premier, and has a similar ability to cut through the bureaucracy. But he will still need to forge a consensus in the government in support of financial liberalisation, especially in the wake of the problems in the US and Europe over the subprime market collapse.

With banks and insurance companies now entering each other’s business areas, Mr Wang is believed to be interested in studying plans for a “super financial regulator”, along the line of the system in the UK.

Mr Wang is also a candidate to head the top-level dialogues with the US, and later this year, the EU. But this has yet to be decided.

By Richard McGregor in Beijing

© Graham Bishop