Bloomberg News

China’s PBOC Chief Search Spurs Focus on Finance Regulators

November 26, 2012

PBOC Governor Zhou

Zhou Xiaochuan, governor of the People's Bank of China. Photographer: Tomohiro Ohsumi/Bloomberg

China’s likely search for a successor to Zhou Xiaochuan as central bank chief is spurring focus on the nation’s banking and securities regulators as the incoming Communist leadership overhauls top government positions.

Guo Shuqing, 56, and Shang Fulin, 61, have both run one of China’s four largest banks, worked as a deputy central bank governor and currently head regulatory agencies -- matching the profile of Zhou, 64, when he took the helm of the People’s Bank of China in 2002.

As securities regulator, Guo has accelerated the pace that predecessor Shang set for opening up to foreign investors, suggesting he could favor faster deregulation of financial markets. While Guo’s public appearances have included a U.S. television talk show, Shang has a lower profile and was once described as cautious by former central bank Governor Dai Xianglong.

“Shang Fulin is a very conservative, very cautious individual who in eight years didn’t fundamentally change the stock market at all,” said Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “If you are looking for reform in the sense of fundamentally trying to change what the model is, then Guo Shuqing is your guy.”

The Communist Party is partway through a once-a-decade leadership change, with Xi Jinping replacing Hu Jintao as party head this month and Li Keqiang forecast to succeed Premier Wen Jiabao in March. Zhou wasn’t on the new central committee named Nov. 14, suggesting he will step aside after a decade that included ending the yuan’s peg to the dollar in 2005.

Relevant Experience

Besides Guo and Shang, five people on the central committee, including China Insurance Regulatory Commission Chairman Xiang Junbo, have experience relevant to being central bank governor. The others are Bank of China Ltd. Chairman Xiao Gang, China Investment Corp. Chairman Lou Jiwei, Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing and central bank Deputy Governor Hu Xiaolian. Jiang and Hu are committee alternates; the others are full members.

Corporate debt issuance under the CSRC rose about 60 percent in the 12 months after Guo took the China Securities Regulatory Commission’s reins in October 2011 from the previous year, government data show. The agency during Shang’s 2002-2011 tenure approved 119 qualified foreign institutional investors; in Guo’s first year, 73 more were licensed. Shang became the banking regulator in October 2011.

Influence Decisions

While lacking a Western central banker’s independence, Zhou’s successor will influence decisions that help shape the global financial landscape. Major issues include how quickly the yuan becomes convertible and China deregulates interest rates, and the nation’s role in global institutions such as the International Monetary Fund.

“The key issue is whether the successor will use his role to push for reform,” said Mark Williams, a London-based economist at Capital Economics Ltd. and former China adviser to the U.K. Treasury.

China may face 7 percent economic growth in 2013, a 23-year low, according to Pacific Investment Management Co., which runs the world’s largest bond fund.

“Guo and Shang are the most likely candidates because of their backgrounds,” said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department. “Zhou’s path to the PBOC was after serving as chairman of a bank and another regulatory commission, so his successor is likely to be one of the current regulators and not a banker.”

Likely Successor

Shang is Zhou’s “most likely successor” and Guo would be “the best successor,” Yu Yongding, a former academic adviser to the PBOC, said Nov. 14.

Guo holds a law doctorate and a master’s degree in Marxism and Leninism from the Chinese Academy of Social Sciences in Beijing. He was previously chairman of China Construction Bank Corp., the nation’s second-largest lender, and from 2001 to 2005 ran the State Administration of Foreign Exchange and was simultaneously a PBOC deputy governor.

While at the CSRC Guo has cut trading fees, pushed for increased dividends and lifted a ban against trust companies buying equities to bolster a stock market whose benchmark Shanghai Composite Index is set for a third straight year of declines. The gauge was down 0.8 percent as of 10:12 a.m. local time today.

At Construction Bank he oversaw share listings in Hong Kong and Shanghai. Guo presided over the sale of a 9 percent stake to Bank of America Corp. for $3 billion in 2005, then the largest investment in China by a foreign company.

China’s Creativity

Guo appeared on U.S. television in September 2011, telling host Charlie Rose that China lacks creativity and its government intervenes too much in business. Rose’s talk show airs on Bloomberg Television, owned by Bloomberg News parent Bloomberg LP.

Shang, a former People’s Liberation Army soldier, holds a doctorate in finance from Southwestern University of Finance and Economics in Chengdu. He was previously president of Agricultural Bank of China Ltd. and also a central bank deputy governor before his time at CSRC.

Shang’s successes at the CSRC included adopting new financial products and overseeing the conversion of non-tradable state shares into tradable ones, said Barry Naughton, a professor at the University of California at San Diego.

Xiao, 54, has been a central bank deputy governor and headed a SAFE branch. He lacks experience at another regulator.

Insurance regulator Xiang, 55, also has a resume that resembles Zhou’s in 2002, having worked as a central bank deputy governor and headed Agricultural Bank of China.

Banking Links

At the same time, “insurance is a very small part of the financial sector and the links with the dominant banking system are weaker than the securities industry,” said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics in Washington.

Politics may determine the outcome and Xi and Li can choose “whoever they like to take this position, with or without the right qualifications,” said Chen Zhiwu, a finance professor at Yale University in New Haven, Connecticut, and former adviser to China’s State Council.

“Ultimately it’s a complicated dance of who has more political capital,” said Loevinger, an Asia analyst in Los Angeles at TCW Group Inc., which oversees $135 billion.

--Kevin Hamlin. With assistance from Paul Panckhurst in Hong Kong, Zhou Xin and Henry Sanderson in Beijing and Stephanie Phang in Singapore. Editors: Scott Lanman, Rina Chandran

To contact Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net


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