Liu He MC/MPA 1995 was appointed Monday (March 19) to oversee China’s financial and economic policy. One of the country’s four vice premiers, and a member of the Politburo since October, Liu assumes the powerful position at a time when China is working to consolidate the vast economic gains it has made over the past two decades and to ward off any potential problems, including a growth in potentially risky loans. Liu’s rise also comes on the heels of President Xi Jinping’s consolidation of his own power, most recently with the elimination of presidential term limits, which has been viewed as a move toward more authoritarian control. We asked Tony Saich, director of the Ash Center for Democratic Governance and Innovation, and Daewoo Professor of International Affairs, about Liu, his rise, and what it portends for China and the world.
Q: Who are the new Chinese vice premiers and what roles will they play?
There are four newly appointed vice premiers: Han Zheng, Sun Chunlan, Hu Chunhua, and Liu He. As there are multiple vice premiers, it depends on the field that you are asked to oversee and the relative strength of the premier, who should be responsible for economic policy. The former Shanghai party boss, Han Zheng, based on party seniority, has been appointed the executive vice premier. Normally this person would oversee the macroeconomic picture but it is rumored that he will oversee concerns related to the environment. Sun Chunlan will oversee a wide-ranging portfolio of science, education, media, and sports, with Hu Chunhua taking on oversight for one of President Xi’s priorities, poverty alleviation. However, it is clear that Liu will be the most influential vice premier since Zhu Rongji back in the early 1990s. He will have the most important role dealing with the financial sector and the economy. His grasp of financial matters at a crucial time of transition for the Chinese economy will ensure that he has an influential voice. This is underpinned by the other formal positions he holds, such as head of the Financial Stability and Development Commission, and his personal relationship with Xi. This mixture of formal and informal authority will mean that he will have more say than many previous people who have held the position of vice premier.
Q: What is the story of Liu’s rise and what is his relationship with the Chinese president?
Until his emergence on the scene at Davos earlier this year, his rise has been quiet when viewed from outside. Following his academic training and research, he began to move into policy related positions. He was a visiting fellow at Seton Hall University and then came to Harvard Kennedy School as a mid-career student, graduating with a MPA degree. He began to accumulate key positions in important institutions working in the financial and economic realm. He has worked extensively in the National Development and Reform Commission, the successor to the old central planning agency, and served as its deputy director from 2013. This is the most important agency in the Chinese government for devising and implementing economic and industrial policy. Also, he has deep connections with the Development Research Center of the State Council, having served there as deputy director from 2011 to 2013. It is anticipated that he will take up the important position as head of the new Financial Development and Stability Commission. His influence in this realm was enhanced by his chairing the office of the Leading Group for Financial and Economic Affairs. This is the Chinese Communist Party’s key agency that seeks to coordinate policy.
Clearly, he enjoys the trust of General Secretary Xi. He would not have gone to Davos to make his speech without Xi’s support. It is said that they became friends as teenagers but there is no clear confirmation for this. However, personal relations and trust are very important in Chinese politics and Xi has been busy in building a leadership team around him that is loyal and that he can work with.
Q: What insight does his appointment, and that of the other high-level officials announced in recent days, give us into the direction of Chinese politics and policy?
We know that Liu is a critic of the debt-fueled program that China adopted following the financial crisis, or at least feels that it has continued for too long and that government stimulus cannot be the main driver of growth. Following the global financial crisis, Liu was tasked with writing a report for the premier on the crisis’s impact on the United States and whether the country would recover or was it in decline. During this process, he visited HKS and I arranged a meeting for him with experts to discuss the challenges. He was sharp and focused, seeing the threats of a financial system that was not under effective control and regulation, while concluding that the U.S. economy was resilient. This was important because at the time, some voices in China where seeing the crisis as marking the inevitable decline of the United States. By all accounts, the report was influential in policy circles within China and within the office of the premier.
Liu’s view is that debt-driven growth carries financial and broader risks, possibly even of a systemic financial crisis. The appointment of Yi Gang to head the central bank, the People’s Bank of China, is also a positive sign of the seriousness with which the leadership views financial sector risk and the need for reform. Yi Gang is U.S.-trained and taught in the United States before returning to take up a faculty position at Peking University. In 2016, Liu is credited with having written an important editorial for the Communist Party’s mouthpiece, The People’s Daily, in which he warned against maintaining economic growth with loose monetary policy. The Chinese have referred to the policy package as their own version of “supply-side economics.” The two main drivers of economic growth in China have been state investment and exports. These two elements will remain important but they cannot be relied on to maintain stable growth in the future. As a result, Liu supports the moves in recent years to maintain slower growth for the economy, around 6 to 6.5 percent, rather than the heady days of double-digit growth. He supports the preference for a more sustainable consumption-based growth.
One of the major challenges that remains is how to deal with the state-owned sector of the economy, which needs to be reformed to use resources more efficiently but which is home to strong vested interests that have roots deep in the Chinese Communist Party.
Q: Can we expect Liu’s familiarity with the United States to have an impact in China-U.S. relations?
One would hope. At least with Liu and new vice president, Wang Qishan, China has two leaders who are familiar with, and have had multiple interactions with, the United States. In a rational world, perhaps Liu could play a positive role in maintaining balance in the relationship. However, moving forward, the relationship will be determined by factors well beyond his sphere of influence. He is moving into his position just as the Trump administration is pushing ahead with an extensive package of sanctions on Chinese goods. In fact, recently when Liu came to Washington to discuss trade relations, he was met by President Trump’s decision to impose the tariffs on steel and aluminum. Despite the broad initial sweep of the decree, subsequently it has become clear that China is the main target. This must have made any talks difficult and was embarrassing for Liu. Under these circumstances, it is difficult to know what he might be able to do but presumably, it is better to have a person in this role who knows the United States, has many contacts here, and understands finance and economics.