The Chinese official responsible for repairing China’s increasingly unstable economy was removed from power Monday in an unexpected move by Beijing.
Finance minister Lou Jiwei, an extremely high-profile figure in Chinese politics and a beacon for market reforms in China, was ousted and replaced by Xiao Jie, a low-level bureaucrat, reports the Wall Street Journal.
Serving as China’s finance minister means playing an important role in the global economy. During Lou’s tenure as finance minister, he attempted to repair China’s economic system through debt management and tax reforms, revealed the South China Morning Post. He also played an important role in the establishment of the Asia Infrastructure Investment Bank (AIIB), a financial institution designed to rival U.S.-led organizations like the World Bank. He reportedly raised the profile of the position of finance minister.
China has been using credit to drive growth for years, putting the country’s economy at risk. China’s credit-to-GDP gap stands around 30, with figures over 10 considered cause for concern. The country’s debt is pushing towards 300 percent of its GDP. Reports indicate that China’s massive pile of bad loans could be 10 times larger than the country admits. China’s non-performing loans (NPL) could be as high as $2.1 trillion. Additionally, the housing bubble is growing, putting further stress on the economy.
Amidst these crises, China’s economic growth has slowed to 6.7 percent.
The man whose job it was to address these issues was removed two years before the end of his term, preventing him from completing his five-year plan. Lou was committed to reducing government borrowing. There is a possibility that Xiao will carry on Lou’s policies, but Lou’s fall leaves a lot of things up in the air. His ousting “introduces a level of uncertainty, which is never a good thing with respect to one of the most opaque economies in the world,” Silk Road Research’s Vinesh Motwani told the BBC.
The Chinese government says Lou was removed from his position because he reached the mandated retirement age for government officials. He had previously made an agreement with Premier Li Keqiang that would allow him to stay in office for his full term. His removal from office suggests that there may be other factors in play.
Some observers suspect that Lou was ousted in a political power play.
“Lou Jiwei’s abrupt ouster sends a strong signal that any prospects of even limited economic reforms are falling prey to President [Xi Jinping’s] focus on consolidating his power,” Eswar Prasad, former head of the China division of the International Monetary Fund (IMF), told the WSJ.
“The best way to be sure of one’s power is to make sure that you put people you trust in positions to support you,” the Jamestown Foundation’s Peter Mattis told reporters.
Lou is said to have been picked for the position of finance minister because of his competence rather than his loyalty to Xi, the new “core” of the Communist Party of China (CPC). There are concerns that Xi may be focusing more on loyalty and growth rather than more important issues affecting the country.
“Xiao is definitely one of Xi’s people,” a Beijing-based policy analyst told the Financial Times.
If China is playing power politics over economic reforms, it could put the world’s second largest economy in jeopardy.
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