BEIJING – China has replaced veteran reformer Lou Jiwei with a new finance minister who will be tasked with juggling fiscal stimulus and efforts to rein in excess leverage in the world’s second-largest economy.
Xiao Jie, previously a senior aide to Premier Li Keqiang, will replace 65-year-old Lou, who has held the job for a little more than three years, according to an official Xinhua News Agency report. There was no news on what post, if any, Lou will go on to take.
Lou oversaw a restructuring of local-government finances that helped reduce the cost of a record amount of debt run up by provinces and cities that binged on spending after the global financial crisis. The Finance Ministry’s top job now goes to a former head of the tax administration.
“This personnel change is not expected to change China’s fiscal policy,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “The biggest challenge remains to broaden the local governments’ narrow revenue base. Reliance on land sales has been a major culprit behind many issues such as the property frenzy. No finance minister has been able to tackle this issue.”
With China’s monetary policy shifting to a neutral stance, the Finance Ministry has been taking on more of the onus to keep the economy humming, through funding projects and expanding the fiscal deficit.
There was no immediate sign of a change in status for central bank Gov. Zhou Xiaochuan, who has been in office since December 2002 in a tenure that’s coincided with multiple finance ministers.
The news from the Standing Committee of the National People’s Congress, the nation’s top legislature, came in a one-line statement. The announcement follows a plenum of top Communist Party officials last month, where President Xi Jinping was declared as the “core” leader of China, a designation that underscored his strengthening authority.
The NPC standing committee also approved two other appointments Monday.
Chen Wenqing was named as the new state security minister and Huang Shuxian as the civil affairs minister.
Xiao holds a doctoral degree in economics. A Ministry of Finance veteran, he has spent more than two decades there since 1982, rising from an employee of its long-term planning division to become a vice minister in 2001. He then had stints as deputy governor of Hunan province, chief of the nation’s tax authority, and then as a top secretary at the State Council, China’s broad equivalent of a Cabinet.
“One thing that differentiates Lou and Xiao is that Xiao has proposed property taxes before 2013,” said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. “This makes me believe that property taxes could be the top priority of his policy agenda, which could be implemented under the current environment of a bubbly property market.”
Lou, a protege of reformist former Premier Zhu Rongji, in the 1990s helped craft the fiscal framework that underlay two decades of 10 percent average growth. As a vice minister from 1998 to 2007, he played a role in economic restructuring that led to China joining the World Trade Organization in 2001. He later served as the chairman of China Investment Corp., a sovereign wealth fund set up in 2007.
Lou became finance minister in 2013 and oversaw efforts to rein in lending and give local governments an officially sanctioned channel for raising money after provinces and cities took on trillions of yuan of debt through opaque financing vehicles after the global financial crisis.
“Lou managed to push through some important fiscal reforms, including reining in local government borrowing, but leaves behind a large and important unfinished reform agenda,” said Eswar Prasad, a former chief of the International Monetary Fund’s China division and now a professor at Cornell University in Ithaca, New York. “Lou’s successor, Xiao Jie, does have substantial experience in fiscal policy, but it remains to be seen whether he has the acumen and clout necessary to push forward those reforms.”
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