Yesterday Liu He, often considered a cornerstone of China’s recent economic policies, ascended to vice-premier, straddling responsibilities - that US counterparts Powell, Mnuchin and Cohn/Kudlow have - into one important role. Liu was the expected, preferred and better understood candidate for the role; this move should strengthen his capacity to apply his prescriptions for a resilient but debt laden and uncertain economy.
Liu has been quietly contributing in Chinese economic progression for many years: having been part of the Communist party for over 4 decades he has assumed various senior roles, and has published hundreds of articles over 3 decades of economic research. Acknowledged by most as a prudent voice; he brings his subsistence of the Cultural Revolution and his Harvard education, and he is a known entity through a number of published papers (including a study on the Great Depression and Global Financial Crisis) and outspokenness on the need to reform.
He’s been a significant influence since 2013. As Chief of the Leading Group for Financial and Economic Affairs, Liu was one of the primary architects of Chinese economic policy and reforms – with Xi Jinping describing Liu as a ‘very important person for him’. Last year he joined China’s Politburo and was China’s spokesperson at the World Economic Forum where he promoted the nations efforts to resolve: economic risk, poverty and pollution. He is seen by the West as someone that can be worked with (exemplified by his willingness for ongoing trade talks even when Trump slapped on steel and aluminium tariffs the day he arrived in Washington).
A particularly influential article by an ‘authoritative person’ in the People’s Daily in May 2016, warning against relying on debt fuelled economic growth, is unilaterally believed to have been penned by Liu and demonstrates that ‘His comments on the economy are accurate and constructive… [and] he never shies away from the problems and difficulties in China’s economy.’ according to Xia Chun, professor at the University Hong Kong.
With his broad remit, respected status, dislike of trade-wars, concern for excessive debt and his respect for market forces Mr Liu’s promotion should help steer the Chinese economy in the right direction; but changing such a behemoth’s course will likely be gradual and iterative. Liu recently stated, ‘As we all know, if a bucket is to hold more water, its shortest plank must be made longer’ and right now, addressing debt, zombie SOEs and trade negotiations with the US are certainly three planks that could do with being made longer. We wish him well in achieving reforms which he states are ‘beyond the expectations of the international community’.