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New Hands Take the Financial Regulation Wheel

Who’s steering China’s carefully managed financial system? Speculators were busy name-guessing before and for several months after the Communist Party’s 18th National Congress in November.

Finally, the dust started to settle with formal appointments announced a few days after the National People’s Congress session concluded in March. Additional appointments to regulatory and state-bank posts were expected soon.

Re-appointed to the post of central bank governor—and ending wild speculation about a possible successor—was Zhou Xiaochuan. On top of that, the 63-year-old won a promotion by being assigned as one of the twenty-three vice chairmen serving on the Chinese People’s Political Consultative Conference (CPPCC).

Likewise retaining his position in the new government under recently named President Xi Jinping and Prime Minister Li Keqiang was Chen Yuan, 68, who has served as chairman of China Development Bank since 1998. He also doubles as a CPPCC vice chairman.

Xiao Gang was transferred to head the China Securities Regulation Commission (CSRC) from the Bank of China, where he was chairman. He was also named to the party’s high-level Central Committee.

Xiao replaced Guo Shuqing, who was transferred to economically powerful Shandong province for a job as a deputy party chief and, it’s expected, a future promotion to provincial governor.

As CSRC chairman, Xiao is expected to continue moving forward with pro-market policies introduced by Guo. He and Guo are said to have different management styles: Xiao has been called studious, shy, and good-natured. But the two men share a commitment to market-oriented progress: Xiao told reporters in March he supports consistency in securities regulations.

Taking the helm as the new Ministry of Finance chief was Lou Jiwei, who was transferred from the top post at China Investment Corp. (CIC), China’s sovereign wealth fund.

Leading contenders for the so-far unfilled seats vacated by Xiao and Lou are Hu Xiaolian, currently vice governor at Bank of China, and Bank of Communications chairman Hu Huaibang.

Jiang Jianqing—whose name was mentioned by those speculating about a possible chief for the central bank, CIC, and the China Banking Regulatory Commission (CBRC)—retained his position as chairman of the Industrial and Commercial Bank of China. He is also serving as a Central Committee alternate.

Bank Transfers

Zhou’s re-appointment followed his success in establishing a new model for governing the People’s Bank of China, which is under the State Council, China’s cabinet. The central bank led by Zhou has spearheaded financial reforms that began a decade ago, while also directing monetary policy.

Zhou is a macroeconomics expert known for firm, market-oriented views. He’s taken advantage of opportunities to systematically push forward reform, and has won acclaim for capably maintaining a dialogue with the international finance community. His work is said to have benefited China’s finance industry by providing a strong cornerstone for financial regulation.

Not since 1994, when Zhu Rongji served as deputy prime minister and central bank governor, has a financial regulator served concurrently as a national leader.

By promoting Zhou as well as Chen to CPPCC posts—considered national leadership positions—those at the government’s top rung affirmed support for financial reform. Zhou and Chen are said to have the experience and vision China will need over the next few years as its financial system continues to adjust.

A CPPCC vice chairman is allowed to hold office until age 70. Ministers and provincial governors must step down at 65 years old, while lower officials and civil servants are retired at 60.

Some retirement rules, however, are no longer strictly followed. For example, the party’s Central Organization Department in recent years has retained several first- and second-tier leaders at state-owned enterprises past retirement age.

The latest personnel changes followed similar moves in late October 2011, when then-chairmen of CBRC and the China Insurance Regulatory Commission (CIRC)—Liu Mingkang and Wu Dingfu—retired. Shang Fulin took over CBRC after a stint at CSRC, and Xiang Junbo, a former Agricultural Bank of China chairman, became head of CIRC.

Xiang’s rise to insurance regulator followed the path taken by Xiao and Guo, who also transferred to regulatory agencies after heading major state-owned banks.

But for now Jiang, who was born in 1953, is staying at ICBC. When he took the helm at the bank—China’s largest in terms of assets—in 2005, he was the youngest chairman among the Big Four state-owned banks.

Of all the big banks, ICBC is considered the most cautious toward business expansion and risk management. Jiang’s ability to contain loan growth in the face of expansionist government policies was the focus of a February article in The Wall Street Journal, which argued that his market-oriented thinking had stymied political ambitions.

A decade ago, Jiang told this reporter, “I would like to be a real banker.” That kind of determination won Jiang support from Liu Mingkang, another former CSRC chairman, who a few years ago recommended him for CBRC chief—advice that higher leaders ignored.

Other bankers in the limelight as the new government takes power include Hu Xiaolian, a 54-year-old graduate of the Central Bank Wudaokao Institute of Finance who rose through the central bank’s State Administration of Foreign Exchange (SAFE) to concurrent jobs as SAFE director and central bank vice governor between 2005 and 2009. She was put in charge of monetary policy in 2009, and appointed as an alternate State Council member, serving in the party’s 17th and 18th congresses.

Sources told Caixin that Hu Xiaolian is likely to be named the next head of the Bank of China, replacing Xiao. Michel Camdessus, a former International Monetary Fund managing director, once praised her as “remarkable, wise, and far-sighted.”

Hu Xiaolian is a member of the Palais-Royal Initiative, which Camdessus helped start in 2010. The initiative drafted an international monetary system reform plan and submitted it to the G20 group of nations. It’s now under discussion.

Meanwhile, CIC’s next leader is also likely to have banking experience: At the top of the speculation list is Hu Huaibang, who has served as Bank of Communications chairman since 2008.

Hu Huaibang, 57, transferred to the bank after serving as CSRC’s party secretary for inspection discipline from 2003 to 2007. He later served as CIC party secretary and supervisory board chairman.

During tenures at CSRC and Bank of Communications, Hu Huaibang was recognized as an open-minded leader. If he takes the reins at CIC, he’s likely to be replaced at the bank by Liu Shiyu, who’s now a central bank vice governor in charge of agricultural issues.

An overriding theme for the new financial sector leadership is reform—a trail blazed in recent years by CSRC, CIRC, and CBRC.

Guo, for example, unveiled seventy reformist policies during his seventeen-month tenure aimed at making the securities market more transparent and fair. He advocated zero-tolerance for fraud and insider trading, pushed for replacing regulatory reviews of IPO applications with a registration system, and set up a delisting mechanism.

At CIRC, Xiang introduced deregulation programs and measures to encourage innovation at insurance companies.

CBRC’s Shang, 61, has rarely appeared in public since taking over the regulatory agency in November 2011. But he’s continued beating the reform drum by, for example, pushing banks to meet Basel III requirements, and improving credit policies for local government financing platforms.