Global Courant
For nearly eight years, Pan Gongsheng has overseen one of the world’s largest hoards of money: China’s $3 trillion in foreign exchange reserves. Now he will lead the country’s central bank and play an even more powerful role in China’s economy.
Mr Pan, a leading economist, was appointed governor of the central bank, the People’s Bank of China, on Tuesday. He had already been appointed secretary of the bank’s Communist Party on July 1. It will be the first time in five years that one person will hold both top positions, making Mr. Pan gains excessive political leverage over the financial system of the world’s second-largest economy.
The appointment of Mr. Pan comes at a delicate time for China. The country’s post-pandemic recovery is faltering, the banking system is full of bad loans to real estate developers and local governments, and the currency, the renminbi, is teetering near its lowest level in 15 years. These countercurrents are making foreign investors think twice about bringing money into China and driving domestic investors to move their investments out of the country.
Foreign exchange reserves are basically a country’s emergency fund that can be used in times of financial stress. As head of the central bank’s State Administration of Foreign Exchange, Mr. Pan stabilized the renminbi after a devaluation aimed at strengthening exports and increasing the global use of the renminbi, which failed in August 2015.
He then stabilized the currency by imposing strict limits, enforced by the police, on the ability of Chinese households and businesses and even multinationals to move money out of the country. His actions halted capital outflows, but seriously damaged the international appeal of the renminbi as an alternative to the dollar, and set a precedent for the plans now underway in Washington to limit US investment in China.
Earlier in his career, he held senior positions at two of the country’s four largest banks, the Industrial and Commercial Bank of China and the Agricultural Bank of China, streamlining the operations of both.
Mr Pan was one of the officials who issued an early warning of the dangers of China’s property bubble, which is now deflating with widespread damage to the economy.
Mr. Pan credits his rise to “competence and a rare level of technical expertise, as he appears to have no political backing from above,” said Andy Chen, a senior analyst at Trivium China, a Beijing-based policy consultancy.
But Mr. Pan’s lack of a power base within the Communist Party can be compensated by leading the top two positions in the central bank. Since 2018, the party secretary has been Guo Shuqing, who was a full member of the party’s powerful Central Committee. The central bank governor has been Yi Gang.
Economic policy continues to be dominated by Vice Premier He Lifeng, a longtime ally and close friend of China’s top leader, Xi Jinping. Mr. He has overseen industrial policy and economic planning for the past seven years. This spring, he was given additional responsibility for international trade and finance, and is expected to gain greater influence over the domestic financial system as well.
Yet surviving as a senior finance official in China today is already an achievement as waves of corruption investigations have felled numerous leaders. Mr. Pan’s ability to avoid legal trouble while overseeing currency reserves is especially remarkable given the agency’s troubled history.
A director of the foreign exchange agency in the 1990s, Zhu Xiaohua, was soon after sentenced to 15 years in prison for corruption while serving as a bank manager, although he was later released on bail. The successor to Mr. Zhu, Li Fuxiang, was abruptly hospitalized in 2000 and died when he fell from a hospital window on the seventh floor.
The foreign exchange bureau was in turmoil again in 2015 when the central bank devalued China’s currency with little initial explanation.
Beijing pushed the value of its currency down for technical reasons, not financial problems. But the Shanghai stock market had crashed two months earlier and the devaluation so alarmed investors that China spent nearly $1 trillion in subsequent months to stabilize the currency.
Mr. Pan halted the renminbi’s decline with strict capital controls. He may be called upon to act on the currency again in his new job. China’s Politburo on Monday endorsed a continued emphasis on maintaining stable value for the renminbi.
Mr Pan’s strict controls on money flows from China in 2016 ended more than a decade of efforts by Chinese policymakers to make the renminbi a globally traded currency that other central banks and major corporations would like to keep.
But some financial policymakers say Mr Pan had little choice at the time, as restricting money from leaving China was part of a broader trend by Beijing of increasingly tighter government controls on the economy.
“He was an administrator, certainly a key figure, managing policy from the top down,” said Mark Sobel, who served as the U.S. Treasury’s deputy assistant secretary for international monetary and financial policy from 2000 to 2015.
Mr. Pan does not come from an elite Communist Party family like Zhou Xiaochuan, who served as central bank governor and Communist Party secretary from 2002 to 2018. Nor is he a former professor of economics at an American university, like the governor of the past five years, Yi Gang. In fact, early in his career, Mr. Pan turned down an acceptance to attend Harvard’s Kennedy School of Government, instead staying in China and helping the two banks where he worked prepare for their IPOs.
People who know Mr. Pan, who turned 60 earlier this month, describe him as a workaholic with a meticulous attention to detail. He is known to mark subordinates’ memos to correct their grammar.
He grew up in Anqing, a flood-prone city on the Yangtze River in Anhui Province in central China. In the 1980s, he received a bachelor’s degree in accounting from Zhejiang Metallurgical Economics College and taught there.
His career took off when he moved to Beijing in 1987 to earn a master’s degree in labor relations from Renmin University, followed by a doctorate in economics and later a year at Cambridge University from 1997 to 1998.
And Harvard? He finally went there in 2011. But it was only for a few months – not an education that might have deepened his understanding of the United States but would have kept him far from China’s center of power in Beijing.
Li You contributed to research.
