At a time when Chinese markets are sliding and the value of the yuan hit new lows on Friday despite official intervention to try and halt the fall, President Xi Jinping is risking more uncertainty by purging the current head of the People’s Bank of China (PBOC).
In news that will take markets by surprise, one of the casualties of Xi’s purges last week looks like being China’s central bank chief Yi Gang.
Reuters reported that he is likely to step down after he was dropped from an elite body of the ruling Communist Party. He looks like being replaced by an in favour, former central banker and top party official in Beijing, Reuters reported on Sunday.
News of the purge came after China’s yuan fell on Friday to its weakest level against the US dollar since early in the GFC in 2008, despite attempts by major state-owned banks to stabilise the market.
That was after share markets in China and Hong Kong both sold off last week by around 2% with the latter hitting 13-year lows on Friday. The key CSI 300 index, which includes top shares from the Shanghai and Shenzhen markets is down 24% so far this year and the Hang Seng Index in Hong Kong has lost over 30%.
Chinese and Hong Kong markets this year have suffered from increasing fears about President Xi’s crackdown on business, the hardline approach in Hong Kong to every day activity.
The yuan and stock markets have also felt the impact of the surge in global interest inflation and rates, especially from the Fed and the Biden Administration’s exclusion of more and more Chinese businesses from everyday American life, investment and market activity.
The weakening yuan has been an almost permanent factor of President Xi’s reign this year though ill thought out Covid lockdowns, attacks on business in China and Hong Kong, the slide in the property sector (thanks to Xi’s ham-fisted crackdown) and his stop start approach to business generally.
The government has attempted surreptitious intervention to try and slow the yuan’s fall and Friday saw that again with Reuters reporting that state-owned banks sold dollars (and bought yuan) in the onshore foreign exchange market to stop the spot price from weakening past the 7.25 to the dollar level.
The onshore yuan finished the domestic trading session down 0.46% on Friday at 7.2494 to the dollar, the weakest such close since January. 14, 2008. The offshore yuan, which trades more freely finished around 7.2721 to the dollar, also a multiyear low.
For the week, it looked set to fall 0.78% as the surging dollar continued to batter emerging market currencies, taking its fall so far this year to 12.3%.
Traders said yuan weakness may persist, reflecting broad dollar strength as Federal Reserve officials show no signs of backing down from their hawkish rhetoric on rate hikes, while Chinese policymakers try to support the sputtering economy.
Meanwhile the removal of sixty-four-year-old Yi was a surprise given there was speculation that his term could be extended as was the case with his predecessor, Zhou Xiaochuan.
Yi was tipped to retire early next year as he neared the retiring age of 65 for middle ranking Communist party members officials (68 is retiring age for top party member office holders except 69-year-old Xi who pushed through an exemption several years ago).
The new seven-member Standing Committee led by Xi, the inner circle of power of the Communist Party and China itself was revealed on Sunday in Beijing.
It is dominated by the Xi’s allies after the humiliation on Saturday of former President Hu Jintao who was removed from the final session of the Congress while sitting next to Xi who looked on and didn’t intervene.
PBOC head Yi was among pro-reform policymakers not named on Saturday as full or alternate members of the party’s new Central Committee. Also excluded were outgoing Premier Li Keqiang, 67, economic czar Liu He, 70, and central bank party chief Guo Shuqing, 66.
Reuters said that Yi was an alternate on the previous Central Committee. His exclusion from the new Central Committee lists means he is almost certain to step down at the annual parliament meeting in March, sources said.
Reuters named Yin Yong, deputy party chief in the Beijing who was a deputy central bank governor from 2016 to 2018, as a leading candidate to replace Yi at the top of the PBOC.
Yin, 53, who holds a doctorate in engineering from Tsinghua University and a master’s degree in public administration from Harvard University, was elected as a full member of the Central Committee during the party congress.
“Yin Yong is likely to replace Yi Gang,” said a source close to the PBOC who talked to Reuters on condition of anonymity.
Other sources described Yin as well-positioned to replace Yi, given his status as a rising star and his previous experience at the central bank, the foreign exchange regulator and Beijing government.
The PBOC has been overhauling its top management team in recent weeks. Xuan Changneng was named deputy central bank governor on Thursday.
Xi’s policies and his hardline determination to see them implemented is worsening growth prospects in China, especially in property and soon in parts of the financial system.
In ratings terms, last week’s Congress and its results are a big ’negative’ for the Chine4se economy.
