The Harvard-Educated ‘Brain’ Behind China’s Economic Transformation

EghtesadOnline: When Liu He takes to the lectern in Davos on Wednesday, the Harvard-educated technocrat will move further into the spotlight that’s been aimed at him since his elevation to China’s top political body last year.

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24 January 2018

A key adviser to President Xi Jinping, Liu is China’s representative to the World Economic Forum’s annual meeting this week. The visit -- which culminates in a speech to the gathering today -- is likely to be the first of many high-profile appearances by the 65-year-old Cultural Revolution survivor, who’s on track to become Xi’s key lieutenant on China’s economy and financial system.

Known back home for guiding policy behind the scenes, Liu is seen by analysts as the heir-apparent to Vice Premier Ma Kai, who helms a new super-committee tasked with presiding over a crackdown on financial-sector risk but is expected to retire soon, according to Bloomberg.

Liu, who was appointed to the 25-member Politburo in October, is his natural successor as China seeks to both open up its domestic markets and rein in years of rampant borrowing.

“Liu will be like a Chinese version combining both Larry Summers and Ben Bernanke, plus the chairman of the president’s economic council,” according to Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “He will not only oversee overall financial markets including monetary policy and financial supervision, but also the relevant fiscal and reform policy.”

Liu is “the brain” behind supply-side reforms to cut overcapacity and boost market forces, and will be a key figure in shaping economic policy for the next five years, Shen said.

More accustomed to playing a behind-the-scenes role in his current job as head of a Communist Party office focused on financial and economic affairs, Liu’s address comes a year after Xi’s defense of globalization at Davos just as Donald Trump took office.

A member of Xi’s inner circle, Liu has helped guide Chinese economic policy as director of the Central Leading Group for Financial and Economic Affairs, which is chaired by the president. He’s also been vice chairman of the National Development and Reform Commission, the government’s top economic planning body.

With debt levels across the economy approaching three times annual output, comprised mostly of a complex web of corporate and household borrowing, China’s key task going forward is easing its addiction to credit without creating a collapse in asset values that would seriously hamper the economy.

Liu is likely to play a key role in that, says James Stent, author of “China’s Banking Transformation: The Untold Story” who spent more than a decade serving on the boards of Chinese lenders. “It’s clear that Liu He is going to be powerful in setting economic strategy, whether as vice premier or whatever title he is given,” he said.

Debt Focus

While Liu has tended to avoid the spotlight, many economists regard him as the voice behind an anonymous missive on debt published in the People’s Daily in May 2016. The Communist Party newspaper published the comments from an unnamed “authoritative person,” who said China must face up to its nonperforming loans and other risks associated with soaring debt.

“It’s widely understood in the industry Liu is the person,” according to Xia Chun, a visiting professor at the University of Hong Kong. “He never shies away from the problems and difficulties in China’s economy.”

In China’s opaque policy world, there’s no guarantee Liu will be appointed to lead the new oversight body. But Xia, like Mizuho’s Shen, says he’s likely to lead the panel.

Liu entered Beijing’s Renmin University in the late 1970s, earning a degree in industrial economy, according to a biography from China’s Xinhua News Agency. He studied business at Seton Hall University in South Orange, New Jersey, and earned a masters’ degree in public administration at Harvard’s Kennedy School of Government in 1995.

U.S. Ties

A former soldier and factory worker who was sent to China’s northeast during the 1966-76 Cultural Revolution, Liu helped draft the five-year plans that underpinned the economy. He spent much of his career in the State Planning Commission, the predecessor of the NDRC that formerly set prices for everything from bicycles to grain.

Liu has also played an important role in the relationship between the world’s two largest economies. As global markets cratered during the U.S. financial crisis, then-Treasury Secretary Timothy Geithner and National Economic Council Director Summers separately made time for Liu, a link to top leaders in Beijing, Bloomberg News reported at the time.

But while Liu can be a smart and thoughtful expert, he ultimately remains a servant of Xi, according to George Magnus, an associate at Oxford University’s China Centre and former adviser at UBS Group AG.

“Everything of substance must now go to and through Xi, regardless of the leanings and preferences of people like Liu,” Magnus said. “He’ll certainly continue to give his boss the benefit of his opinions and advice, but implementation of anything has to pass muster with the president.”