China Names Li Top Financial Regulator in Surprise Move

(Bloomberg) — China picked a little-known local government official as the nation’s top regulator overseeing the $61 trillion financial sector, in a surprise move after President Xi Jinping unveiled the biggest overhaul of the nation’s bureaucracy in decades.

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Li Yunze, a former banker, was named party secretary of the newly formed national financial supervision and management bureau that regulates thousands of banks, insurers and trust firms, according to an announcement Wednesday.

The 52-year-old is being elevated from his latest post as a vice governor of Sichuan province, where he has served since 2018. He was added to the list of alternate members of the Central Committee — the country’s most senior officials and political elites — last year at the Communist Party’s 20th congress meeting.

His appointment may come as a surprise to market watchers, who had expected a pick with more seniority and expertise as Beijing is trying to rein in risk while shoring up growth in the world’s second-largest economy. He vaulted above some expected front-runners for the job, including Yi Huiman, chairman of the China Securities Regulatory Commission, and Zhu Hexin, chairman of Citic Group Corp., a ministerial level financial conglomerate overseen by the State Council.

“The decision was far from expected,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “But Li indeed has deep and good relationship with his former managers including Guo Shuqing and Yi Huiman. Markets need more time to know if Li will bring some new thoughts on financial supervision.”

In speeches in 2017 and 2018, while a banker, Li stressed the role financial institutions have in supporting economic development and preventing financial risks, according to local media reports. At a symposium with financial institutions in Sichuan late last year, Li urged them to step up support to key areas and “weak links” to help the local economy. He also called on more targeted and effective efforts to resolve risks.

The appointment also stands in contrast with leadership changes in March when Beijing reappointed several top economic officials including central bank governor Yi Gang to provide continuity. Analysts had expected a larger reshuffle at that time with officials with international experience to be replaced by men with closer personal ties to Xi but less familiar to global investors.

Still, his insight into provincial government operations and finances may help him tackle long-standing debt risks at the local level. Goldman Sachs Group Inc. estimated the debt racked up by China’s provincial governments at $23 trillion — 126% of gross domestic product — if their off-budget borrowing is included. Curbing local debt risks was highlighted by President Xi as a key challenge officials must tackle this year.

“Li has leadership experience at big banks and held key provincial positions where he oversaw several risky disposal matters,” said May Zhao, head of equity research at Zhongtai Financial International Ltd. “His experience will be helpful in the ambition of building up a unified system of financial supervision, preventing risks and giving powerful support to the real economy.”

The enlarged national regulator was unveiled in March in a bid to step up oversight over the financial sector as authorities pledged to prevent and defuse economic and financial risks this year. The shake-up will give the Communist Party a firmer grip on the sector, and centralize key policy decision-making under Xi in his precedent-defying third term.

The regulator — with a focus on beefing up oversight of financial institutions and cracking down on violations — kicks off its work as an anti-graft campaign in the finance industry gathers steam. Last month, authorities warned bankers of a deepening crackdown on corruption, following a “look back” at five financial companies as part of a central government inspection in late March.

A native of eastern Shandong province, Li holds a doctor’s degree in economics. He’s the first cadre among the 1970s generation to reach a ministerial level role at a central government agency.

While he had worked at two of the nation’s largest state-owned banks before he took the government post in Sichuan, he didn’t rise to the top positions. Li most recently served as a senior executive vice president of Industrial & Commercial Bank of China Ltd. during 2016-2018.

Prior to that, Li was head of a local branch during his more than two decade tenure at China Construction Bank Corp.

–With assistance from Fran Wang, Lulu Yilun Chen and Jing Li.

(Updates with comments in sixth paragraph.)