China's Minister of Finance Lou Jiwei. Photo: Reuters
China's Minister of Finance Lou Jiwei. Photo: Reuters

China has replaced its finance chief as part of a ministerial shake-up on Monday at a crucial time as investors’ concerns grow over the country’s mounting debt and rising fiscal deficits.

Xiao Jie, 59, who is deputy secretary-general of the State Council and described as close to Premier Li Keqiang, replaces veteran Lou Jiwei as Minister of Finance.

Lou had served as finance minister since March 2013, and may move to lead the nation’s social welfare fund, according to some reports.

The 65-year-old Lou is known as a protégé of Zhu Rongji, who was the Chinese premier from 1998 to 2003 that oversaw China’s economic rise.

Moreover, Lou has a good relationship with Liu He, who is a close ally of President Xi Jinping. Liu leads the government’s decision-making body on financial and economic affairs.

Along with Liu, Lou has argued for accelerated reforms, including crucial changes in the labor sector, to avoid falling into the so-called middle income trap.

The outgoing finance minister is turning 66 next month and would not have been able to stay in office after the upcoming 2017 party congress.

The personnel shift shows Lou was not granted an exception as had been the case for China’s central bank governor, Zhou Xiaochun, who had stayed on beyond the typical retirement age and will be 69 in January.

The newly appointed finance minister Xiao is also known to be trusted by both Xi and Liu.

Previously the head of China’s tax administration and an expert on tax reform, Xiao would be able to greatly push forward the much-delayed property tax reform. Xiao is 59 and will be able to serve under Xi and Li from 2018 to 2022.

Brian Jackson, China economist at IHS Global, said that since the Xi administration began in 2012, China’s central government and state media had consistently and increasingly signaled that some form of national property tax will be implemented starting in 2018.

These signaling efforts go well beyond just former-minister Lou Jiwei and the Ministry of Finance under his leadership, and have been intensifying in recent months.

Xiao’s understanding of the national tax system, as well as overlap with the implementation of property tax trials that launched in 2011, will be an asset when integrating those changes with the overall fiscal system and coordinating policy changes and implementation between finance ministry, China’s State Administration of Taxation and other authorities such as the Ministry of Housing and Urban-Rural Development.

A technocrat, Xiao’s career lies mostly in administrative roles with a background within the Communist Party of China. He entered the finance ministry at 25 after graduating from Renmin University of China, which used to be a party school, majoring in finance.

He worked through the ranks in the finance ministry till 2005, before taking on a key position in the local party in Hunan until 2013 when he took on his previous role in the State Council. Xiao is expected not to rock the boat in China’s existing reform plans.

New changes in State Security

China also named Chen Wenqing as the new chief of the secretive Ministry of State Security, as well as a new head of civil affairs, at the closing of a regular session of the standing committee of China’s parliament.

Chen succeeds Geng Huichang, while Huang Shuxian takes over the role of Minister for Civil Affairs, replacing Li Liguo.

Li Liguo is under investigation for alleged corruption, while Huang has been the Minister of Supervision since 2013.

Xinhua did not say why the ministers had stepped down, but Lou is 65.

China’s overall debt has jumped to more than 250% of gross domestic product from 150% at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.

The local governments in China are in the midst of refinancing trillions of yuan in debt as some face falling revenue and rising deficits.

Additional reporting by Reuters