MNI: Top Banker Seen As PBOC Governor Amid Regulator Shake-up

The incoming People’s Bank of China governor’s immediate task will be to support a recovery amid sluggish domestic demand, while coordinating longer term with a new regulator to manage risks in a financial system burdened with debt after a decade of expansion, policy advisers told MNI.

Veteran banker Zhu Hexin, who chairs Citic Group, has been tipped as the leading contender to replace Yi Gang at the helm of the central bank, with China’s National People’s Congress set to vote on the new governor on Sunday after receiving a list of candidates on Saturday. He Lifeng, head of the National Development and Reform Commission, is likely to become the PBOC’s Party Secretary, while Guo Ningning, vice-governor of Fujian province, is expected to become director of the State Administration of Foreign Exchange.

The senior leadership changes will coincide with the unveiling of a new regulator, the National Financial Regulatory Administration, which will coordinate with the PBOC and the China Securities Regulatory Commission in formulating policy and managing risks.

Another new organisation, which will sit above the three regulators, is expected to be established after the “two sessions” to coordinate the financial regulators and take a strategic approach to the healthy development of the financial sector. The new committee is expected to be led by Premier Li Qiang or a vice premier.

WELL QUALIFIED

Zhu’s 30-years of banking experience makes him a well-qualified candidate to lead the central bank, an adviser familiar with the PBOC’s operations told MNI on the condition of anonymity. Zhu has a track record of defusing systemic financial risks, having helped oversee the government takeover of failed Baoshang Bank when he was a PBOC vice governor, the adviser added.

China’s top monetary policymaker must carefully balance the need for easing policy to support the economic rebound while ensuring leverage does not rise quickly, the adviser said. The governor needs to be alert to systemic risks that could be triggered by the collapse of real estate developers and local government funding vehicles given lenders' credit exposure to them, he added. (See MNI: China’s Prudent Targets, Stimulus Show Risks To Recovery)

“All the interconnected risks would be exposed at a gradual pace when the economy is slowing down. If we had 9 covers for 10 pots in the past, now we just have less,” he said.

The challenging environment requires a sharp focus on policy making and more effective enforcement, he said, highlighting the restructuring of financial regulators proposed by the State Council on Tuesday.

The restructure will see the PBOC surrender oversight of financial holding companies and the protection of financial consumer rights to the new watchdog, whose design is based on the soon-to-be-superseded China Banking and Insurance Regulatory Commission. The new National Financial Regulatory Administration - translated from its Chinese name as its official English title has not been announced - will regulate all financial sectors except the securities sector.

SHARPER FOCUS

The change removes some micro supervision tasks from the central bank and sharpens its focus on monetary policy and macro-prudential issues like financial stability, another advisor, who requested anonymity, told MNI. He explained that macro-prudential tools used to complement monetary policy include window guidance, mortgage down payments, and cross-border capital controls.

The PBOC will be streamlined by cutting nine regional branches, all county-level agencies, and 25 branches in capital cities. The central bank will instead establish 31 provincial branches and five city-level agencies.

The provincial offices will enhance the implementation of monetary policy, particularly through targeted tools, and closely monitor and defuse local government financial risks, the advisor said.