Caixin
Mar 19, 2018 12:35 PM
FINANCE

Xi Adviser Liu He Named Vice Premier

Liu He. Photo: VCG
Liu He. Photo: VCG

As the curtain falls on the annual meeting of China’s legislature, 66-year-old economist Liu He has been thrust into the spotlight for the first time as one of the government’s key movers and shakers.

A longtime adviser to President Xi Jinping, Liu has become one of four vice premiers. Based on his rank and expertise, he will likely take charge of tackling the country’s economic and financial challenges.

Liu is an unfamiliar face to many in the business and financial community outside China. He made his debut on the international stage in January when he represented China at the World Economic Forum in Davos, Switzerland, where he gave a speech about the country’s plans for economic reform and opening up its markets. His Davos appearance, along with his visit to Washington in February to try to smooth trade tensions with the U.S. and restart a stalled bilateral economic dialogue forum, underscore the key role Liu will play in the second term of Xi’s presidency.

Although he has kept a relatively low public profile, Liu has played an influential role behind the scenes in formulating China’s economic and development policies over the last 15 years. In October, he was elevated to the Politburo, a committee of the top 25 Communist Party officials that oversees the party.

He is referred to by many as the chief architect of China’s latest economic reform strategy, which Xi outlined at the 19th Party Congress in October, while foreign commentators have described him as China’s version of Larry Summers, an American economist who became U.S. Treasury secretary and head of the U.S. National Economic Council under then-U.S. President Barack Obama.

Liu was born in Beijing in 1952. During the Cultural Revolution, he served as a soldier in the People’s Liberation Army, and from 1974 to 1978, he worked at the Beijing Radio Factory. Liu took the university entrance exam in 1979, two years after it was reinstated, and won a place at Renmin University to study economics. After gaining a bachelor’s degree, he earned a master’s degree in management, also at Renmin University, graduating in 1986.

He began his career as a government researcher and economist in 1986, working his way up through the ranks to become the head of the Office of the Central Leading Group (CLG) for Financial and Economic Affairs, a committee under the direction of the Politburo in charge of leading and supervising the economic work of both the party and the State Council, China’s cabinet, and most recently deputy director of the National Development and Reform Commission (NDRC), the powerful economic planning agency.

Liu’s first position was at the Development Research Center, an organization under the State Council that carries out research into long-term strategic issues related to China’s economic and social development and provides policy recommendations. He was then appointed deputy director of the Industrial Policy and Long-term Planning Department of the State Planning Commission (SPC), which later became the NDRC. During his decade at the SPC, Liu studied overseas, gaining a Master of Public Administration from the Kennedy School of Government at Harvard University in 1995. He was also a visiting fellow at Seton Hall University’s business school in the 1992-1993 academic year.

In 1998, Liu moved to the State Information Center, a policymaking think tank under the NDRC, and served as deputy director until 2001. In 2011, he returned to the Development Research Center as deputy director. His influence grew when he was appointed to the CLG for Financial and Economic Affairs in 2003 where he was responsible for overseeing macroeconomic policy planning and drafting speeches for Hu Jintao, the party’s general secretary and the country’s president at the time. After Xi took over as head of the party and became president in 2013, Liu was promoted to head the group’s General Office.

Liu was one of a team of policymakers who helped put together the country’s Five-Year Plans, which guide the country’s economic and social development, and played a key role in drafting the 12th plan, which covered 2011 to 2015.

He popularized phrases such as “top-down design” and “bottom-line thinking,” and raised awareness in Chinese economic and policy circles of the threat of the “middle income trap.” Although the concept was generally accepted in the international economic field, it triggered heated debate among domestic policymakers and scholars about how to overcome what could be a serious obstacle to the country’s economic development.

In a wide-ranging exclusive interview with Caixin in 2010, Liu discussed the government’s concerns about the “middle income trap” and how China could avoid it.

“From a global perspective, only a few countries such as Japan, (South) Korea and Singapore have crossed this bridge easily since World War II,” he told Caixin. “Most countries have stagnated. How can China cross over this potential pitfall and move forward to a higher level? Doing so would require that the nation fix a very clear development strategy. Then it can achieve its goal of being moderately well-off.”

He hinted at the strategy the party and the government would follow in subsequent years to transform the country’s growth model from one focused on boosting aggregate demand through investment and export-led expansion, to one driven more by consumption and on the need to improve people’s lives. The interview also presaged the shift to supply-side structural reform that Xi initiated in late 2015 and the strategy to upgrade the country’s economic structure to one based on technology and knowledge.

Liu’s influence on economic policy grew after Xi became head of the party and president of the country. Liu is widely believed to be the unnamed “authoritative figure” who gave a high-profile interview to the People’s Daily, the official newspaper of the Communist Party, in May 2016 that warned of the consequences of excessively high financial leverage. He condemned high leverage as the root of all evil and the cause of financial risks in the currency, stock, bond and property markets, as well as the banking sector.

Liu was also behind the country’s push for supply-side structural reform to improve total factor productivity, urbanization — which aims to cultivate more cities to take in rural migrant laborers — and crackdown on financial risks, analysts Vincent Chan and Shen Hu from Credit Suisse wrote in a report last month.

Liu has a profound understanding of China’s economic transformation and his published works indicate that he believes in the market economy, supports reforms and embraces economic and international cooperation, they wrote. Nevertheless, one shouldn’t expect him to embark on “drastic reforms that might send China into a shock,” they said.

In addition to developing his government career, Liu also built a reputation as a serious academic, a rarity among China’s economic policymakers. Among the many research papers Liu has published over the years, one of his most renowned works was the “Comparative Study of the Two Global Crises” in 2012, which analyzed the common characteristics and lessons for policymakers of the Great Depression, which started in 1929, and the global financial crisis that began in 2008.

He concluded the paper with recommendations to China’s policymakers on how to deal with future crises. “We must be prepared for the worst-case scenario in the event of a crisis but must still strive to optimize outcomes. We have to be able to respond to unexpected external shocks but also make long-term preparations to cope with structural changes,” he wrote.

The paper is available on the Chinese online platform of e-commerce giant Amazon.com. Of the 29 reviews, 21 gave it a five-star rating out of five stars. One comment reads: “If you know the author you know the true value of this book.”

Contact reporter Leng Cheng (chengleng@caixin.com)

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