(Bloomberg) — As doubts grow over whether Xi Jinping still prioritizes expanding China’s economy over other goals, he’s tipped to appoint a new economic adviser who’s vowed to put growth first.
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He Lifeng, who’s known Xi for more than four decades, runs China’s powerful planning agency, the National Development and Reform Commission. He’s seen by economists and China watchers as a likely successor to Liu He, Xi’s economic czar who could retire after the Communist Party’s congress in mid-October.
Liu is well known to international investors, acting as China’s chief negotiator with the Trump administration during the trade war. Liu earned a reputation as willing to tolerate slower growth for the sake of financial sector reforms aimed at curbing debt growth, a campaign that’s contributed to the current property market slump.
Parsing through recent speeches from He Lifeng (pronounced Her-Lee-Fung), he appears to be more pro-growth than his predecessor, with a willingness to boost credit and ramp up infrastructure spending. However, when it comes to real estate, he seems to favor shrinking the market.
He, 67, is likely to have “more focus on growth,” than his predecessor, said Victor Shih, associate professor of political science at the University of California San Diego, “which in the short term will be positive for the economy.”
He would gain influence as analysts increasingly question whether economic growth remains a policy priority for Xi. His strict Covid Zero policy, a crackdown on large private technology companies, and willingness to challenge elements of the Washington-led international order, which has deterred US investment, have led economists to lower long-term forecasts.
In an article last year, He said increasing economic development was the party’s “number one task” and “the foundation and key to solving all our country’s problems” — two phrases used by Communist Party leaders in recent decades to signal a growth-first approach to the economy.
Xi has avoided those slogans in major speeches since 2017, instead emphasizing that growth and national security have equal status. Liu He has stressed the importance of “quality” growth over its pace and a need to balance growth with reducing economic risks.
As head of the NDRC, He’s overseen a series of massive infrastructure projects. Before that, he’d worked as a senior official in several large Chinese cities, relying on construction of expressways, bridges and tunnels to boost growth. That earned him the nickname “big demolisher He,” according to a note from analysts at consultancy Trivium.
“Given He’s local government experience, it’s safe to say that he’d be pro-investment, (relatively) outward-looking, and business-friendly,” the analysts wrote.
His friendship with Xi goes back to the 1980s, when they were both local officials in the coastal province of Fujian. He is seen as one of Xi’s closest confidantes, regularly accompanying him on domestic trips and foreign missions, including the president’s first travel outside of China since the pandemic.
He, who has a Phd in economics from Xiamen University, was one of the few guests invited when Xi married folk singer Peng Liyuan in 1987, the Wall Street Journal reported. The two often played basketball together, Japanese media Nikkei reported.
“All the signs point to him replacing Liu He” as Xi’s top economic official, said Cheng Li, an expert on elite Chinese politics at the Brookings Institution, although secrecy around the ruling party’s congress means there is still some uncertainty about the promotion.
He would inherit Liu’s powerbase as a member of the Politburo, the Communist Party’s 25 most-senior officials, and a director of the party’s Central Financial and Economic Affairs Commission. Under Xi, party committees have usurped the role of the State Council, headed by China’s premier, in setting economic policy.
If he replaces Liu, He would likely also become head of the State Council’s financial stability committee and possibly take the title of vice premier at a government meeting in March.
As He has less international experience than Liu and is associated with a state-led approach to the economy, international investors may not see his promotion as “market friendly,” Li said. As a result there could be efforts to balance his appointment by keeping a figure more familiar to foreign audiences — perhaps Liu He or current Vice Premier Han Zheng — in a senior economic role, said Li.
He has argued in speeches that the key task of the government is to steer investment enabling workers to produce higher-value products, especially in technologies where China could be cut off from international supply. He supports China’s goal of peaking carbon emissions by 2030, and of Xi’s “common prosperity” drive to reduce inequality, although he warned against the risk of “raising lazy people,” by providing too much government welfare.
He is already closely linked to China’s Belt and Road Initiative, as director of the State Council’s leading committee overseeing the project. Xi and He “may adjust some of the policies, but other than that they will continue to push the BRI,” Li said.
He’s promotion won’t comfort investors in China’s huge real estate sector, which is suffering from its worst-ever slump. The excessive flow of money into property development is one of the “three imbalances” in China’s economy which He has railed against in speeches.
The other two imbalances identified by He are the flow of credit toward speculative assets rather than the real economy, and companies inability to meet consumer demand for high-end goods. He has condemned reliance on generating economic growth by increasing economic inputs such as land and energy, rather than using those inputs more efficiently.
He became a senior official in the northern city of Tianjin in the aftermath of the global financial crisis, overseeing the construction of a massive new district billed as “China’s Manhattan,” which helped drive the city’s economic growth above 16%. The project left a legacy of empty buildings, non-performing loans and Tianjin’s growth has subsequently underperformed other large cities.
With growth slowing sharply this year, Beijing has already signaled greater flexibility about Liu He’s signature de-leveraging drive aimed at reducing debt-levels in the economy, allowing the government to borrow more while continuing to reduce corporate leverage. That is a trend that could continue under He.
Over the course of his career, “He clearly showed that he would not hesitate to expand credit to boost growth,” Shih, the political science professor, said.
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