New PBOC governor has unfinished business to take care of

YI Gang, the new governor of the People's Bank of China (PBOC), must discharge some important unfinished business in his country - and meet additional global challenges that are only now emerging.

Mr Yi, 60, takes over from Zhou Xiaochuan, retiring aged 70 after 15 years in the job, at a time when Beijing is placing greater emphasis on controlling risk in a Chinese financial system that even leading officials admit contains dangers of implosion.

At the same time, in view of a leadership vacuum in world politics and economics stemming from US unilateralism, opportunities for China from its own brand of targeted monetary internationalism are greater than ever. As a former head of the State Administration of Foreign Exchange, which manages China's US$3.1trillion stock of foreign currency reserves, Mr Yi has a natural leaning towards international affairs.

Domestic preoccupations will however loom large. Concentration of political, economic and financial power is now firmly with the Communist party, with President Xi Jinping at its head.

The government's control of currency and monetary policy is likely to strengthen further under the stewardship of Vice-Premier Liu He, now given wider powers as the country's supreme economic technocrat. Although far from enjoying the independence of his western counterparts, Mr Zhou - softly spoken and persuasive on the world stage - had been at the forefront of an unparalleled period of Chinese expansion and liberalisation.

The task now for the US-educated Mr Yi - a deputy governor since 2008 - is to continue this progress while assuring investors and policymakers that China is a safe place to deposit assets and build businesses. He will also form part of the effort to show the US, Europe and the rest of Asia that Beijing can be entrusted with a rising share of world economic decision-making, in the absence of coherence in the US.

Here are five recommendations for Mr Yi:

Mr Zhou and other officials have often highlighted asset bubbles, dangers from shadow banking activities and high debt among corporates and households. Mr Yi must show that he can preside over effective remedial action.

Although this form of buttressing growth through new vehicles for debt and equity financing has its uses, Mr Yi should show that he is aware that it could become addictive and even lethal. Many PPP legal contracts are poorly understood and unenforceable.

Providing a framework for capital market inflows and outflows, within the constraints of China's continuing capital controls, could provide a bubble-mitigating safety valve for pent-up domestic investment demand. This would also create a way for international investors, including central banks and sovereign funds, to diversify assets.

In line with an increase in regional trade and Asian financial collaboration, Mr Yi could step up similar efforts elsewhere in Asia, including through the Belt and Road initiative.

Some observers say that this vaunted plan to expand infrastructure investment throughout Eurasia could itself become an untameable source of risk.

More could be done to heighten the credibility of mainstream economic data. Mr Yi could support efforts to improve understanding of how central banks are holding a greater number of reserve currencies - including the yuan - as well as gold, in line with the PBOC's own considerable reserve diversification over the past decade. OMFIF