Opinion: Yi’s the Man

On Monday, the State Council ended the long-running guessing game about who would become the next governor of the People’s Bank of China (PBOC) when it named Yi Gang to the position.

Yi’s appointment is noteworthy in a number of ways.

PBOC’s first ‘sea turtle’ chief

All of Yi’s predecessors spent their entire academic careers in China. Zhou Xiaochuan graduated from the Beijing Institute of Chemical Technology, and later from Tsinghua University. Zhu Rongji is also a Tsinghua alumnus. Dai Xianglong graduated from the Central Institute of Finance and Economics.

In contrast, Yi is the first central bank governor to be educated abroad. He is a “sea turtle” — or “haigui” — the popular play on words that refers to Chinese who have returned home after living overseas. In the early to mid-1980s, Yi studied at Hamline University in St. Paul, Minnesota, in the U.S., and later earned a doctorate in economics from the University of Illinois. From 1986 to 1994, he was an associate professor at Indiana University-Purdue University Indianapolis.

Yi’s ascension to central bank governor demonstrates the Chinese government’s ability to break from tradition when it comes to talent. It had been believed that Yi’s overseas experience would hurt his chances of receiving the appointment. Now it seems that people had underestimated the current government’s open-mindedness and confidence.

Given the growing anti-globalization sentiment around the world, and China’s entry into a “new era,” Yi’s appointment has special significance: it indicates that China is a staunch supporter of globalization. The new central bank chief’s international worldview helps increase China’s authoritativeness in managing the global economy. It allows China to grasp the historic opportunity presented by the American retreat from globalization, and benefits the joint development of the global economy and finance.

Alternate choice

With the exception of Dai Xianglong, all of China’s central bank governors over the last 30 years had been full-fledged members of the Communist Party’s Central Committee before taking office.

But Yi is only an “alternate” member — one without voting rights — of the 19th Central Committee.

It’s worth noting that the current top banking regulator, Guo Shuqing, has been a full, voting member of the 18th and 19th Central Committees, while Liu Shiyu, head of China’s securities regulator, is also a member of the 19th Central Committee.

Prior to Yi’s appointment, market speculation focused on members of the 19th Central Committee, including Liu He, Guo Shuqing, Jiang Chaoliang, and Xie Fuzhan as possible new central bank chiefs. Yi’s appointment was indeed unexpected.

The central bank is a constituent department of the State Council, while the regulators are not part of the State Council but rather subordinate to it. The central bank’s authority has been increasing in recent years. With this year’s State Council overhaul shifting the right to formulate important laws governing banking, insurance, and the regulatory system to the central bank, the central bank’s powers are rising to unprecedented heights. It is inevitable that Yi will soon be promoted to a full Central Committee member.

Zhou’s old partner

Zhou Xiaochuan was governor of the central bank from 2002 to 2018. Yi served as deputy director of the central bank from 2007 to 2018, and was secretary general of its monetary policy committee from 2002 to 2003. He was also Zhou’s assistant from 2004 to 2007. The new governor and his predecessor have seen their experience at the central bank overlap significantly.

Yi’s appointment to central bank governor has relieved the market for now of fears that a new governor would implement tighter monetary policy and stricter supervision. Yi, as Zhou’s old partner, is experienced with managing monetary policy and international business, and is intimately familiar with Zhou’s long-term monetary and macroprudential policies, both of which are expected to maintain continuity under Yi.

PBOC chief versus Fed head

Just a month before Yi was appointed governor of the PBOC, Jerome Powell became the new chairman of the U.S. Federal Reserve.

Federal Reserve Chairman Powell’s career is characterized by practical experience. He spent his early career as a lawyer. Later, he worked in investment banking and in mergers and acquisitions.

In contrast, Yi spent much of his career in the “ivory tower.” After returning to China, he was a professor at Peking University’s China Center for Economic Research. He did not begin working at the central bank until 1997. Yi is an economist, through and through.

Both newly appointed central bank chiefs have pragmatic personalities and have kept a low profile, so their individual personalities may get played down during their tenures.

More importantly, U.S. officials appointed by the Trump administration have tended to be hawkish, conservative and anti-globalization, while the Chinese government has exuded confidence, openness, tolerance, and pro-globalization values in its personnel decisions.

Powell has been considered dovish, but once he took office he proved to be more of a hawk. It has lately been a turbulent time for White House officials. In March, the president’s chief economic advisor, Gary Cohn, resigned, and U.S. Secretary of State Rex Tillerson was removed from his position. New Secretary of State-designate Mike Pompeo is an outspoken hard-liner who sees China as a long-term threat to the United States.

In contrast, the Chinese government’s newly appointed central bank governor has a wealth of overseas experience and a broad international outlook. Yi Gang has long held the reins of China’s efforts to internationalize the yuan and give the market a greater role in setting the exchange rate. Yi will surely lead the central bank in pushing China’s institutions to perform better in the international arena, supporting a new generation of globalization strategies, including the Belt and Road initiative and other Chinese-led programs.

Deng Haiqing is a chief economist with JZ Securities. Chen Xi is a researcher with Haiqing FICC. This piece has been edited for length.

Translated by Teng Jing Xuan (jingxuanteng@caixin.com)