In a surprising move, Yi Gang has been re–appointed as China’s central bank governor, signaling that a pro-market mind of high international stature will continue to represent the world’s second-largest economy on the global stage.
Expected to retire, Yi’s retention provides some relief amid concerns raised by the international business community over a new leadership team that mostly consists of home-grown talent loyal to President Xi Jinping. With tensions between China and the West over trade, technology, and other issues, Yi’s familiarity with global institutions such as the Group of 20, the International Monetary Fund, and the World Bank will be invaluable.
Despite the diminished state of the institution, Yi’s high global exposure, professional quality, and international background make him a valuable asset. As Deputy Director of the Economic Policy Commission at the state-backed China Association of Policy Science, Xu Hongcai, has stated, “We need someone like Yi who can communicate on the international stage, such as G20.”
Yi’s background sets him apart from his potential replacement, veteran Chinese banker Zhu Hexin. Unlike Zhu, who built his entire career in China, Yi spent over a decade in the United States, obtaining his doctorate from the University of Illinois and teaching at Indiana University. Yi is one of China’s highest-ranking “sea turtles,” a term used to describe overseas returnees.
Yi has long advocated interest rate and currency liberalization and helped implement major currency reforms in 2005 and 2015. In August 2019, the People’s Bank of China replaced benchmark bank lending rates with the market-driven loan prime rate (LPR). Yi has repeatedly cautioned against risks from excessive credit and money growth, although China’s debt has risen faster than its economy in recent decades and is now almost three times as large.
Under Yi’s leadership, the central bank has cut the reserve ratio 14 times since early 2018, injecting more than 10 trillion yuan into the economy. Some economists argue that inflation in China is benign because the economy’s productive capacity has better access to resources, including credit, than consumers. Others praise Yi for keeping prices under control.
Yi’s primary challenge remains keeping an increasingly indebted economy growing while the developed world teeters on the brink of recession, and geopolitical tensions mount. However, as the Communist Party tightens its grip on the economy, analysts say that Yi has limited room for more reforms. Despite this, Yi’s appointment underlines the importance of policy stability and his steady hand in managing policy. The PBOC will continue with its modest easing this year, and the possibility of rolling out big reforms is low.
