Exclusive Insight: The "We Know America" faction in China's financial bureaucracy retires, and officials from Jiangsu, Zhejiang, and Shanghai take over

China’s Top Diplomat Blasts ‘Hysterical’ US Response on Balloon; Chinese officials arrive in Taiwan on first post-pandemic visit; The Jack Ma test for China’s promised shift

Welcome to today's issue of The China Brief. In international news, China's top diplomat Wang Yi has criticized the US over the shooting down of a balloon allegedly being used for spying, while seeking to restore Chinese relations with Germany and Europe amid Ukraine's war fallout. Meanwhile, a group of Chinese officials has arrived in Taiwan for the first time in three years, and an FT op-ed warns against taking China's promises of economic and financial reforms at face value until its most famous entrepreneur, Jack Ma, is free to speak publicly at forums. Stay tuned for more updates on China's domestic and international affairs.

Here’s today’s exclusive insight:

The "We Know America" faction in China's financial bureaucracy retires, and officials from Jiangsu, Zhejiang, and Shanghai take over

China's State Council is currently implementing a complete overhaul of personnel, which is a departure from the past practice where continuity in cabinet positions was considered important, even when a new premier took office. The current reshuffling somewhat resembles party rotations in democratic governments: Premier Li Qiang has an unprecedented opportunity to form his cabinet.

Bare-knuckle politcs is nothing new within the Chinese financial bureaucracy. For example, former Premier Zhu Rongji ousted Li Guixian, who was aligned with former Premier Li Peng, and became the central bank governor himself. Later, Zhu also demoted Dai Xianglong from his position as governor of the People's Bank of China to Tianjin.

Zhou Xiaochuan was appointed as governor of the central bank with the consensus of Zhu and Jiang Zemin, mainly because Jiang valued Zhou's father, Zhou Jiannan.

Zhou demonstrated his proficiency in navigating tumultuous times, as evidenced by his successful steering of the central bank away from financial crisis. This accomplishment facilitated his extended tenure as governor, beyond the customary norm.

Zhou Xiaochuan displayed remarkable fortitude by refusing to be swayed by Wang Qishan, who was then in charge of finance. Despite being highly regarded by US business and political circles, Wang was, in reality, a fusion of a Beijing ruffian and a bureaucrat.

Ultimately, Xi Jinping has not relied on Wang Qishan or favored Zhou Xiaochuan, and currently the governor of the central bank, Yi Gang, and the head of the Banking and Insurance Regulatory Commission, Guo Shuqing, are considered transitional figures. Although the new Premier, Li Qiang, lacks central work experience, he might not need it anyway. Xi Jinping's unchallenged power enables Li Qiang to choose financial system leaders according to his own discretion.

Wu Qing, the deputy mayor of Shanghai responsible for financial work, was once Li Qiang's direct subordinate. Shanghai is the center of China's securities trading, and it is precisely this experience that led Wu Qing to be selected as the new chairman of the China Securities Regulatory Commission.

Yi Huiman's stature in the Central Committee of the Communist Party of China surpasses that of Wu Qing, and he may be reassigned as head of the China Banking and Insurance Regulatory Commission, a post that could possibly be a counterweight to a leading candidate for the future governor of the central bank, Zhu Hexin.

Yi Huiman ascended the ranks from the Zhejiang banking system, whereas Zhu Hexin currently holds the position of Chairman at CITIC and previously served as Deputy Governor of the central bank. Zhu's professional career has spanned the financial systems of Jiangsu Province, Beijing, and Sichuan Province.

Confirmation of these appointments would signal the retirement of the “We Know America” faction in the central financial system. Notably, both of the previous governors, Zhou Xiaochuan and Yi Gang, studied in the United States, with the latter even securing a tenured position at the prestigious Indiana University.

(This is an exclusive analysis provided by Ho Pin for "The China Brief.")

Bloomberg: China’s Top Diplomat Blasts ‘Hysterical’ US Response on Balloon

China's top diplomat, Wang Yi, criticized the US over the shooting down of a balloon that was allegedly being used for spying, calling the decision to shoot it down "incomprehensible and almost hysterical." He spoke at the Munich Security Conference, where Vice President Kamala Harris and Secretary of State Antony Blinken were also present. The incident has disrupted efforts to stabilize relations between the two countries, and Blinken has postponed his visit to China. Wang also criticized US policy on trade and Taiwan, calling the CHIPS Act "100% protectionism" and violating World Trade Organization rules. Wang is visiting Germany, France, Italy, and Hungary, seeking to strengthen ties with Europe and counter what Beijing sees as US containment.

Nikkei: Chinese officials arrive in Taiwan on first post-pandemic visit

A group of Chinese officials, led by Liu Xiaodong, the deputy head of the Shanghai office of China's Taiwan Affairs Office, arrived in Taiwan to attend a cultural event for the first time in three years since the COVID-19 pandemic began. The visit comes at a time of high military tensions between the two countries. A dozen pro-Taiwan independence supporters protested their arrival outside the airport, expressing concern that China's aim was to push its policies on the democratic island. While city-to-city exchanges had continued until interrupted by the pandemic, China has refused to speak to Taiwan's government since President Tsai Ing-wen took office in 2016, believing she is a separatist.

FT Op-ed: The Jack Ma test for China’s promised shift

Liu He, China's economic czar, assured the world's biggest companies that China is "back and open again for business" and committed to implementing bold economic and financial reforms. Liu played an important role in sending soothing messages to US and European interlocutors to calm real concerns about the damage done to China's economy by its "zero-Covid" policy. But Liu's remarks reflected real concerns at the top of the party about the effects of the policy, and they may not carry as much weight as if President Xi Jinping had made them. Liu's long-running war on financial risk triggered the default of one of China's largest real estate developers, and there is little evidence of any significant policy changes toward the tech and property sectors. Moreover, trusted "friends of China" are also expected not to ask embarrassing questions. Until China's most famous entrepreneur, Jack Ma, is free to speak publicly at forums, Liu's assurances should not be taken at face value.

SCMP: China looks to reboot Germany, Europe relations, amid Ukraine war fallout

China's top diplomat, Wang Yi, has sought to restore Chinese relations with Germany and Europe in a series of meetings this week. China is trying to regain goodwill from its strained relationship with Europe, which was brought about by China's support of Moscow in Ukraine's war. Analysts believe that China is making efforts to restore its connections in Europe as the EU accounts for almost €700 billion in annual two-way trade with China and has become a key node in China's Belt and Road Initiative. Despite the efforts, there are doubts about how successful these efforts will be, especially if China wants Europe to become a joint bargaining chip against the US.