Lou Jiwei: China finance minister rewrites rules

Lou Jiwei has taken strides to rein in government debt and helped create the AIIB but faces huge challenges in the months ahead.

For the second year running, FinanceAsia has ranked the finance ministers of the Asia-Pacific region’s 12 largest economies.

We're releasing the results day by day, from lowest to best. For the results so far, click here. For last year's results, click here.

FinanceAsia considers several factors when thinking about how to compare the performance of these men over the past 12 months. The role’s responsibilities and powers vary between countries but each minister contributes to fiscal policy and the budget, accesses capital markets, regulates financial institutions, and drives reform. Investor perceptions are one way to view how good a job they are doing, particularly when times are tough.

But the hardest criterion is independence. Most finance ministers serve at the pleasure of their prime ministers, presidents, or military dictators. Their ability to get things done requires political deftness, mastery of policy, sway over the bureaucracy, and the will to fight for the public interest.

Today's finance minister oversees the region's biggest and most high profile economy, and can point to some noteable achievements in a difficult year.

Ranked No7: Lou Jiwei, China

Finance ministers in China generally lack the clout of their overseas counterparts. But the outspoken Lou Jiwei has made an impact by trying to rein in mounting local government debt, one of the biggest risks facing China, and by helping set up the Asian Infrastructure Investment Bank, arguably China’s biggest success in rewriting the global financial rules.

The ministry of finance last year launched a large-scale debt-swap programme, enabling indebted local governments to sell Rmb3.2 trillion ($490 billion) in bonds to replace existing debts, mostly off-balance-sheet, short-term bank loans with high interest rates.

Some economists welcomed the move, saying it boosted transparency and enabled local governments to roll over existing loans into cheaper government bonds with longer maturities. The debt swap mechanism, Lou said, would help save local governments an estimated Rmb200 billion in interest payments each year.

But critics argue that such an arrangement still doesn’t address the capacity of local governments to repay debts and so will only delay a repayment crisis.

Still, with the long-awaited New Budget Law taking effect in January 2015, Lou also banned local governments from raising new funds via financing vehicles, often from the shadow banking sector.

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China’s fiscal deficit has increased during Lou’s three-year tenure as the government has adopted proactive fiscal measures to shore up economic growth. Its deficit target as a ratio of GDP was 2.3% for 2015, up from 2% in 2013.

Despite that, China last year posted its slowest annual economic growth in 25 years.

Lou has admitted that Beijing is struggling to meet its fiscal revenue target for 2015 amid sluggish land sales and a property downturn.  That in turn has delayed his plans for taxation reform. The implementation of value-added taxes across all industries to cut down on duplicate taxation and help reduce corporate costs, for example, was postponed to 2016.

On the plus side, Lou played an important role in establishing the AIIB and was elected as the first chairman of its council in January.

On Monday: a newcomer with big shoes to fill

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