BEIJING (Reuters) - Guo Shuqing, head of China’s new regulator for the banking and insurance sectors, has been appointed the Communist Party chief and deputy governor of the People’s Bank of China (PBOC), official publication Financial News reported on Monday.
As PBOC party chief, Guo will exert the widest influence at one of the world’s most powerful central banks, which unlike its peers in some countries is not fully independent. Its decision-making is broadly subject to the political influence of the Communist Party and the government.
Sources had told Reuters on Sunday that an announcement on Guo’s appointments was imminent.
Having the same person serve as both the PBOC’s party chief and a deputy governor is unusual in China and has surprised economists and financial markets.
As PBOC’s party chief, Guo outranks new PBOC Governor Yi Gang politically, but as a vice governor he is one step below him.
For 15 years, Zhou Xiaochuan, Yi’s mentor, had served as both PBOC’s governor and party chief. Guo himself is both chairman and party head of the newly established China Banking and Insurance Regulatory Commission (CBIRC).
Both men will support Liu He, China’s new vice premier and a key economic adviser and trusted ally to President Xi Jinping, to push the central government’s development and reform agenda.
“Liu He is actually the one who outlined the big theme in terms of economic and financial policies. Both Guo and Yi will be implementing this economic policy outline,” said Betty Wang, senior China economist at ANZ in Hong Kong.
Guo’s unique role will allow him to coordinate policymaking and implementation between PBOC and CBIRC, and help advance Beijing’s financial reforms, sources said.
As PBOC’s party boss, he will ensure the central bank is aligned with the Communist Party’s agenda, which puts the party at the core of China’s economic leadership, sources said.
Guo is a full member of the Communist Party’s Central Committee, the largest of the party’s elite ruling bodies, while Yi is an alternative member.
However, Yi is still expected to be in charge of the PBOC’s day-to-day operations, sources said.
Yi, a U.S.-educated economist, 21-year central bank veteran and previously Zhou’s right-hand man, will be able to ensure the consistency of monetary policy, sources said.
Simultaneously holding the positions of party boss and deputy ministerial head is not without precedent in China. Zhang Yesui is currently party chief of the foreign affairs ministry and a vice foreign minister at the same time.
But the economy and the party have become more intertwined since a party congress in October when President Xi Jinping consolidated his grip on power. Party control is deemed necessary to help push reforms through a massive bureaucracy and into action on the ground.
The top-level arrangement of Guo and Yi’s positions is expected to improve inter-agency coordination in China’s monetary and financial policymaking process, and close regulatory loopholes as authorities work to contain systemic financial risks, sources said.
China’s regulators are trying to rein in risks from an increasingly complex financial system and a rapid build-up in debt without jolting markets or hurting economic growth.
The new leadership team is also facing pressure to follow through on China’s long-standing pledge to further open its financial sector to foreign investors as the U.S. steps up pressure on China for what it calls unfair trade practices.
President Xi has made it clear that financial security is key to China’s national security, and control of financial risks is a top government priority.
Economists and regulators say the previous regulatory regime was too fragmented to curb such risks, especially shadow banking and excessive financial leverage.
Speculation that Beijing was considering creating a super financial regulator had been rife since the Chinese stock market crash of 2015, blamed in part on poor inter-agency coordination.
Last year, China created the Financial Stability and Development Committee (FSDC) under the State Council, giving it a higher political ranking than the various government ministries already involved in financial oversight.
The committee has its office installed at the central bank and has the authority to supervise and question financial regulators and local governments.
Guo has developed a reputation for being willing to take tough and aggressive action, and his appointment at the central bank comes after China earlier this month revealed its biggest government structural overhaul in years.
Guo only returned to Beijing last year to helm the banking watchdog, which has since merged with the insurance regulator.
As head of China’s previous banking regulator he started what was dubbed a “regulatory windstorm”, implementing a flurry of new measures to tackle the sector’s most complex problems.
During his 17 months as chief stock market regulator from 2011 to 2013, Guo drew up 80 new policies, fought widespread insider trading, advocated reform of the initial public offering system, promoted the delisting of loss-making firms, and boosted the participation of foreign investors.
Guo was once a PBOC deputy governor in the early 2000s, overlapping with Zhou. Guo also previously served as China’s top foreign exchange regulator.
Reporting By Shu Zhang and Ryan Woo; Additional reporting by Elias Glenn and Ben Blanchard; Editing by Kim Coghill