Read more about China’s man in Davos and the brain behind economic reform
Further measures to encourage international investors and make the world’s second-largest economy more accessible are on the agenda for China at a time when the threat of a full-scale trade war with the U.S. is rising. As it battles pollution, poverty and financial risk, the economy needs all the growth drivers it can muster to offset the impact of those upgrades which are potentially painful in the short-term.
“If they follow through on implementing these steps, it will be quite a positive,” said Jim O’Neill, former chief economist at Goldman Sachs Group Inc. “Donald Trump’s advisers will need a new whipping horse.”
Liu, who was elevated to the Communist Party’s 25-member Politburo in October after many years of guiding economic policy behind the scenes, is taking on more public roles and seen as in line to become vice premier this year. The potential promotion may mean he’ll lead the State Council’s Financial Stability and Development Committee, a new organization charged with corralling China’s disparate financial regulators and defusing risks.
“Wednesday’s speech by Liu in Davos marks his debut in front of the world,” said Larry Hu, chief China economist at Macquarie Securities Ltd. in Hong Kong. “We believe this is meant to be a clear signal that Liu will be the spokesperson for China’s economic policy over the next five years.”
Liu said economic globalization should be more “open, inclusive and balanced,” echoing Xi’s remarks last year, when he urged business and political elites to reject trade war and protectionism. Xi’s appearance at Davos, which has more usually been attended by China’s premiers, showed the country has become more active in leading globalization.
“China has stood firm against all forms of protectionism,” Liu said. “We have broadened access to our financial markets and taken the initiative to increase imports.”
Beijing in November took a major step toward the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks while allowing overseas firms to take majority stakes in local securities ventures, fund managers and insurers.
“We will further integrate with international trade rules and ease market access,” Liu said. “We will further open up the services sector, the financial sector in particular.”
U.S. Commerce Secretary Wilbur Ross had a different take on China’s free-trade credentials when he found himself defending U.S. President Donald Trump’s “America First” mantra in a panel at the forum later on Wednesday.
“The Chinese for quite a little while have been superb at free-trade rhetoric and even more superb at highly protectionist behavior,” Ross said. “Is there really free trade or is it a unicorn in the garden? Every time the U.S. does anything to deal with a problem, we are called protectionist.”
The U.S. seeks to be the leader in making the world trade system fairer and more equitable but leadership “is different from being a sucker and a patsy,” he said.
‘Global efforts’
As it pledges further opening, China’s top policy imperative is ensuring financial stability. Liu said he wanted to highlight that the buildup of financial risks and Beijing’s response to them are “closely related” to changing global markets. “That’s why we welcome participation and cooperation of the international community in China’s endeavor to address financial risk as its part and parcel of global efforts to uphold world economic stability,” he said.
He cited a marginally slower credit growth as a positive sign and said China will strive to control the overall debt ratio over three years, echoing earlier pledges by leaders.
Liu’s comments signal “senior leadership will continue to make lowering leverage in the financial system a key priority” to address the large rise in overall debt as a share of economic output, said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore.
Liu has been one of the country’s most influential economists for decades and more recently has led efforts to reduce financial sector risk, according to research firm Trivium China.
“His promotion to the Politburo means that he will play a large role in Xi’s second term, most likely as vice premier or head of the Central Policy Research Office,” Trivium co-founder Trey McArver wrote in a recent report. “Whatever role Liu takes, he’s likely to have outsized influence on economic policy. Should he be vice premier, he will be the most important economic official in the land.”
