HONG KONG — China’s president, Xi Jinping, has handed the reins of the country’s financial system to a close ally, strengthening his hold over the world’s second-largest economy and sending a clear signal that companies must reduce risky borrowing.
Liu He, an economic adviser to Mr. Xi and previous leaders, was appointed on Monday as vice premier overseeing financial and industrial policy after a ritual vote by China’s legislature, the National People’s Congress. His title comes with greater powers after a move by Mr. Xi to centralize control over the financial sector by consolidating banking and insurance regulators. Mr. Liu’s closeness to Mr. Xi appears likely to enhance his influence.
Mr. Liu’s elevation was another step toward cementing Mr. Xi’s control over nearly every facet of Chinese political and economic life. The congress, which is holding its annual meeting in Beijing, voted last week to eliminate a presidential term limit on Mr. Xi, potentially extending his rule deep into the next decade and maybe much longer.
But Mr. Liu’s appointment also signaled that Mr. Xi has grown more serious about fixing a financial system groaning under the weight of a decade-long borrowing spree that has left it riddled with shadowy risks, economists said.
Mr. Liu, a Harvard-educated technocrat, is widely seen as a driving force behind China’s efforts to rein in high-flying entrepreneurs who have borrowed heavily to pay for global expansion. His job as vice premier is likely to include oversight of a recently formed financial stability committee.
China is grappling with a surge in debt that has begun to threaten its growth. The International Monetary Fund has warned about the problem, and two credit rating firms downgraded China’s rating last year. But global growth has picked up, offering Chinese officials a window of opportunity to lower debt without slowing the economy too much.
With his background, Mr. Liu, 66, seems to respect market forces, while also sharing Mr. Xi’s goal of maintaining the Communist Party’s grip on Chinese society, and particularly the economy. He also appears to see the dangers of failing to act to tackle the long-festering debt problem. He has studied the long-term risks to China’s economic ascent and oversaw a study about the lessons of the Great Depression and the global financial crisis of 2008.
He is widely regarded as the anonymous “authoritative person” who gave an interview in 2016 to People’s Daily, the Communist Party’s main newspaper, which accused unnamed officials of trying to spend their way out of economic doldrums, rather than shutting down debt-loaded, inefficient “zombie enterprises.”
Myron Brilliant, executive vice president and head of international affairs at the United States Chamber of Commerce, said that Mr. Liu “wants market liberalization with Chinese characteristics.”
“He’s an architect in a system that has more than one view,” said Mr. Brilliant, who has met Mr. Liu. “He is driven in part by his learnings from Harvard — he certainly understands the value of the market and private sector.”
That understanding was apparent during the current session of the National People’s Congress, when Mr. Liu lectured officials from the northern province of Shanxi, which has struggled with a slowdown and corruption, to spur growth by better protecting the property rights of investors.
“It’s crucial for a business environment to have good protection of property rights under transparent rule of law,” Mr. Liu said, according to Chinese news reports. “This is a fundamental issue.”
Ultimately, Mr. Liu’s ability to reduce financial risk may depend on Mr. Xi and how much of an appetite the Chinese leader has for a painful overhaul that could slow growth.
Mr. Xi has made moves toward such changes, promising to open China’s economy even further. Last month, China’s Banking Regulatory Commission announced it had cut red tape for foreign banks, after a government announcement in November that it would relax and possibly remove limits on foreign ownership of Chinese banks.
But those expecting a sweeping opening of China’s economy are likely to be disappointed, some experts warn. While Mr. Liu is considered an able policymaker, his main mission will be to implement Mr. Xi’s vision of an economy that serves the interest of the party and the Chinese state, and not the other way around.
Mr. Liu is “a steady pair of hands who has apparently managed many economic issues competently over the past couple of years,” said Arthur Kroeber, managing director of Gavekal Dragonomics, an independent economic research firm.
But, Mr. Kroeber added, “the direction of economic policy under Xi has become quite clear over the past few years: state capitalism, with a large role for strengthened or consolidated state-owned enterprises, co-optation of private companies to serve state agendas.”
Mr. Liu’s appointment helps advance a push by Mr. Xi to consolidate the regulatory bodies that oversee the world’s No. 2 economy. This goal was apparent last week, when the congress approved a sweeping reshuffling of government that merged many separate agencies into a smaller number of superministries.
A failure by a tangle of competing regulatory agencies to communicate is widely blamed for causing a 2015 crash by China’s stock markets.
In addition to his promotion, Mr. Liu is likely to remain office director of the Central Leading Group for Financial and Economic Affairs, the Communist Party’s back-room committee for steering policy. Spanning the key government and party posts may help Mr. Liu to better calibrate and communicate policy and avoid stumbles like in 2015.
His promotion also threatens to marginalize China’s prime minister and Mr. Liu’s nominal superior, Li Keqiang. Previous occupants of that job have claimed a big say over the economy, but Mr. Li may be overshadowed by Mr. Liu, who has closer ties to the real center of policy, Mr. Xi.
Mr. Liu will work with Yi Gang, China’s newly appointed central bank chief who succeeds Zhou Xiaochuan. Mr. Yi, also American educated, will play a big role in the economy, ensuring that the credit taps are open just enough to help the economy without allowing runaway borrowing.
Mr. Liu’s promotion will thrust him into international prominence after a career mostly spent whispering advice into the ears of China’s leaders. Mr. Liu also drafted economic policies for Mr. Xi’s two predecessors, Hu Jintao and Jiang Zemin.
Mr. Liu spent years in the United States as a student and is a confident English speaker. He studied business at Seton Hall University in New Jersey, and went on to receive a master’s degree in public administration from the John F. Kennedy School of Government at Harvard University.
Even before his promotion on Monday, Mr. Liu has been taking a higher profile. In January, he traveled to the World Economic Forum in Switzerland with a message that China would surprise the world with moves that would make China’s economy more open.
Mr. Xi has so much confidence in Mr. Liu that he sent him to Washington in February on a mission to ease trade tensions with the Trump administration. During the trip, Mr. Liu also met with Wall Street executives including Jamie Dimon of JPMorgan Chase, Laurence D. Fink of BlackRock and David M. Solomon of Goldman Sachs.
But Wall Street may not find Mr. Liu all to its liking.
“What we’re seeing now is a pretty decisive turn away from Western-style market liberalization,” said Andrew Gilholm, director of analysis for China and North Asia at Control Risks, a consulting firm. “Now what we’re seeing is that centralization and rule by directives. Discipline inspection is being seen as the cure-all.”