Xi Shuffles PBoC Functionaries As Yuan Slides, Stocks Struggle

Yi Gang is a lame duck.

China this weekend named SAFE frontman and “three red lines” architect Pan Gongsheng as PBoC party chief, setting the stage for a reconstitution of the dual-role setup at the central bank, wherein the same person is Party secretary and governor.

If that sounds like Chinese to you, I’ll translate: Yi won’t be PBoC governor for much longer.

This wasn’t a complete surprise. He was left off the new Central Committee roster in October, when Xi Jinping further consolidated power in what amounted to a coronation ceremony at the 20th National Congress. Xi later retained Yi as PBoC governor, but Pan’s appointment as Party chief effectively marked the end of Yi’s tenure. He was expected to retire anyway, and stepped down as deputy Party secretary.

Pan, a deputy governor at the central bank for more than a decade, didn’t make the Central Committee either. His predecessor as PBoC Party chief, Guo Shuqing, was on the Central Committee, though. Guo also served as director of the China Banking and Insurance Regulatory Commission, was SAFE director at one point and held a number of other top jobs.

China is struggling+ to reestablish confidence in a nonexistent economic recovery, and the PBoC has repeatedly pledged to do its part.

The latest official PMIs showed the manufacturing sector in contraction for a third month, while the non-manufacturing gauge fell further to 53.2, the lowest since December, when the decision to lift COVID curbs overnight amid rare street protests went awry.

So far, PBoC support is limited to the kind of dribs and drabs easing investors have come to expect from a body which consistently eschews so-called monetary “flooding” in favor of boilerplate assurances about “ample” liquidity. The PBoC lowered repo rates and the key MLF rate last month, setting up modest cuts to banks’ lending rates.

Fading expectations around the economy have contributed to a steep slide for the yuan, which is trading near the weakest levels against the dollar in a decade and a half.

The PBoC is leaning into the fix and, tellingly, cracking down on the dissemination of “negative information” about domestic stocks (a finance writer with almost five million followers disappeared from Weibo late last month).

Pan is the keeper of the reserves, which officially amount to $3 trillion. If you ask Brad Setser, they’re actually more like $6 trillion. There’s no shortage of firepower to intervene, but overt intervention isn’t consistent with the charade that says the yuan (which, the de-dollarization fans among you are reminded, is soft-pegged to the currency it’s allegedly going to supplant) is more market-determined than it used to be.

I’m not sure Pan’s appointment or the reconsolidated director-governor role makes much difference. He’s just a career technocrat. Pan has Cambridge and Harvard on his resume, and markets know him well, but that’s not the issue here “Dude” (somebody will get it). The problem is Xi. If anything, that problem now appears worse at the margins. Both top central bank roles are soon to be occupied by someone who isn’t on the Central Committee. Not that anyone other than Xi has any influence regardless of Party standing, but if anyone did, that person isn’t Pan.

The CSI 300 is among the only underperformers in a world where virtually all assets have done well+ in 2023. The MSCI China is down almost 20% over five months.