President Xi banks on the ‘Three Wise Men’ to handle economy

President Xi Jinping has put the finishing touches to his inner circle team of economic advisers by bringing in the ‘Three Wise Men.’ On Monday, Liu He was elected one of four vice-premiers at the National People’s Congress, China’s de facto rubber-stamp parliament, and he is expected to have a broad brief.

At the same time, Yi Gang will take over as governor of the People’s Bank of China, or central bank, from his mentor, Zhou Xiaochuan, who is stepping down. Just 60, Yi is considered one of the “young guard.”

Along with the wily veteran Wang Qishan, who was appointed vice-president on Saturday, President Xi has assembled a ‘brains trust’ to deal with the economy and tackle rising debt levels which have spooked Beijing.

“Frankly speaking, [Yi’s nomination is] a bit unexpected as he holds a relatively low political ranking as an alternative member of the CPC [Communist Party of China] Central Committee,” Tommy Xie, the China economist at OCBC Bank in Singapore, told Reuters.

“In terms of implication, we see policy continuation as Yi will support Liu He to drive economic reform. Both [have been] the main driver to China’s reforms in the past few years,” he added.

Just like Xi’s “old friend” Wang, Liu is a confidante of the President with connections going back to their teens. The 66-year-old is also Harvard-educated and stepped on to the global stage at the World Economic Forum in Davos at the end of January.

His speech focused on China’s three critical battles, such as resolving major risks in the world’s second-largest economy, the fight against poverty and the on-going ‘war’ on pollution.

“As we all know, if a bucket is to hold more water, its shortest plank must be made longer,” he told business and political leaders at the sleepy Swiss resort.

“Likewise, for China to build a moderately prosperous society in all respects, we must fix the shortest plank in our development through winning these battles,” he added.

Still, his rise to the upper echelons of power comes at a time when the ruling Communist Party faces mounting pressure to rebalance the economy and push through radical reforms to deal with systematic risk in State-owned enterprises.

Many of these “zombie companies” have been kept alive by a forced drip of government subsidies, casting a giant shadow over China’s industrial landscape for the past three years.

Excessive borrowing has also fueled a broader Beijing campaign to rein in “irrational spending” by major conglomerates.

Part of Liu’s job will probably include crafting and pushing through policies right across the sectors, and making sure increased powers at the People’s Bank of China are channeled in the right direction.

“He might be able to design the right policy. However, getting people to implement it, especially at the local level, might be a challenge,” said Hongyi Lai, a specialist in Chinese politics at the University of Nottingham in England.

“If someone is disobedient, he may draw on Xi’s power to push [it] through. But I would say that cannot be used on a daily basis.”

Liu could also play a rule in defusing a potential trade war with the United States after President Donald Trump slapped stiff tariffs on steel and aluminum imports from China.

Last month, he went to Washington and appeared to make limited headway behind the scenes with both countries agreeing to hold further talks.

“He is believed to have handed three requests to the Trump administration,” sources told Bloomberg News. “They were, establish a new economic dialogue, name a point person on China issues and hand over a specific list of demands.”

Standing alongside Liu will be Wang, who built a fearsome reputation as the former anti-corruption tsar in President Xi’s first term in office.

Renowned for his economic skills, he also has an extensive network of influential global contacts and forged enduring ties with major Wall Street figures such as Hank Paulson.

After stepping down last year when he reached “retirement age”, the 60-year-old has been brought back by President Xi, who has become the most powerful leader in China since Chairman Mao Zedong following the Communist Party’s decision to scrap the two-term time limit earlier this month.

Significantly, Wang was at the frontline of Xi’s anti-corruption crusade, heading the party’s Central Commission for Discipline Inspection. In the past five years, up to 1.5 million officials have been purged in a nationwide crackdown. Many were opponents and critics of President Xi.

“Choosing Wang as vice-president will consolidate [Xi’s] power,” said Hua Po, an independent Chinese political commentator.

“China’s ministries are giant, nationwide silos and fiefdoms that never talk to one another. Hence, in order to accomplish anything major, the command must come from the top down; only they can get ministries to work together,” Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ, added in a note.

Indeed, surrounded by his ‘three economic wise men’, President Xi looks impregnable. The same can not be said of the economy.

Pushing through reforms and further opening up to foreign competition will be a priority in quelling growing disquiet among major trading partners. The world will be watching every move.

Read: President Xi turns to old friends to manage economy