China keeps central bank chief Zhou on in reform push

BEIJING: China kept Zhou Xiaochuan on as governor of the central bank on Saturday in a bid to speed up market-based reforms needed to sustain long-term growth in the world’s second-largest economy and to ensure policy continuity amid global uncertainties.

The re-appointment of Zhou, a key driving force behind China’s financial liberalisation, signals Beijing’s bid to put economic growth on a more sustainable footing.

“By keeping Mr. Zhou as the central bank governor, the new leaders signal that they endorse what Mr. Zhou has achieved and wish to continue China’s unfinished financial reforms,” said Ting Lu, China economist at Bank of America-Merrill Lynch in Hong Kong.

“We expect China’s new government to further liberalise exchange rates, lift capital controls, liberalize interest rates, open up the banking sector and develop capital markets.”

Zhou, who took the helm of the People’s Bank of China (PBOC) in 2002, has led the drive to liberalise interest rates and abolish the yuan’s peg to the U.S. dollar, a step along the path to turning it into a global currency.

Reuters reported last month that Zhou was to keep his central bank post, courtesy of his elevation to the Chinese People’s Political Consultative Conference (CPPCC) that carries “national-level leader” rank and exempts him from compulsory retirement at 65 for officials in cabinet minister-ranked jobs.

Zhou reached that age in January.

The announcement, which was widely anticipated following Zhou’s election to the CPPCC, came on the penultimate day of China’s annual session of parliament, the National People’s Congress.

It was unclear how long Zhou will remain central bank chief, but a source with leadership ties told Reuters last month that he was needed to drive capital account reform. Zhou will be the longest-serving central bank chief since the establishment of the People’s Republic of China in 1949, and among the longest-serving in the world.

Analysts believe the PBOC aims to make the yuan basically convertible by 2015. But formidable challenges lie ahead as the country has entered a stage where big changes face push-back risks from vested interests, especially from state giants in key sectors.

In the near term, Zhou has to keep inflation, which climbed to a 10-month high of 3.2 percent in February, at bay while ensuring the economic recovery remains on track.

Zhou said this week that China must stabilise inflation expectations and vowed to manage the risk of rising prices as the central bank’s first priority.

China’s parliament also appointed Lou Jiwei, former head of China Investment Corp. CIC.UL, the nation’s sovereign wealth fund, as finance minister on Saturday.

Lou, a key architect of China’s tax reforms in 1994, will lead reforms to lower the tax burden on smaller firms, with more fundamental changes needed to wean growth-obsessed local governments off their reliance on land sales for survival.

“His appointment is not a surprise given that Lou is an old hand on finance and tax issues,” said Haibin Zhu, China economist at JPMorgan Chase in Hong Kong.

“Finance and tax reforms are unavoidable but will probably be the most difficult.”

China’s former land and resources minister, Xu Shaoshi, was named chairman of the National Development and Reform Commission, the economic planning agency that wields approval authority over major investment projects.

Gao Hucheng was named commerce minister to oversee the country’s vast export sector amid rising spats with trade partners.