China has appointed a new finance chief as it grapples with rising government debt, shrinking fiscal revenue and slowing economic growth. Lan Foan, 61, has taken over the position of party secretary of the finance ministry from Liu Kun, according to a statement issued by the ministry on Friday. Lan is expected to become the finance minister soon, replacing Liu in the role.
Lan’s background and experience
Lan has a long and distinguished career in China’s financial sector. He started as a bank clerk in 1982 and rose through the ranks to become the president of China Construction Bank, one of the country’s largest state-owned lenders, in 2013. He was also the chairman of China Development Bank, a policy bank that finances major infrastructure projects, from 2017 to 2019. He then served as the deputy secretary-general of the State Council, China’s cabinet, before taking up his new post at the finance ministry.
Lan is widely regarded as a reform-minded and pragmatic official who has a deep understanding of China’s financial system and fiscal policy. He has been involved in several major initiatives, such as the establishment of the Asian Infrastructure Investment Bank, the reform of local government debt management, and the promotion of green finance and carbon neutrality.
Lan’s challenges and tasks
Lan faces a daunting task of balancing China’s fiscal policy amid multiple pressures. On one hand, he has to ensure sufficient government spending to support the economy, which has been hit hard by the Covid-19 pandemic, the property sector slump, and external uncertainties. On the other hand, he has to rein in the soaring local government debt, which poses a systemic risk to financial stability and fiscal sustainability.
According to official data, China’s general government debt reached 60.5% of GDP by the end of June, up from 45.8% at the end of 2019. The central government debt ratio was 22.5%, while the local government debt ratio was 38%. However, some analysts estimate that the actual debt level could be much higher, as it does not include the hidden debt of local governments and state-owned enterprises.
Meanwhile, China’s fiscal revenue growth has slowed down significantly, as the government has cut taxes and fees to ease the burden on businesses and consumers. In the first eight months of this year, China’s fiscal revenue increased by 12.6% year-on-year, down from 21.8% in the first half. The fiscal expenditure growth also decelerated to 5.3% in the same period, from 12.1% in the first half.
As a result, China’s budget deficit contracted by 0.7 percentage points to 3% of GDP in the first eight months, indicating a weaker fiscal stimulus for the economy. Some economists have called for a more proactive fiscal policy to boost infrastructure investment and social welfare spending, especially as monetary policy has become less effective in stimulating demand.
Lan’s opportunities and prospects
Lan also has some opportunities and prospects to improve China’s fiscal situation and performance. One of them is to enhance the efficiency and transparency of fiscal spending, by strengthening budget management, performance evaluation, and public oversight. Another is to diversify and optimize fiscal revenue sources, by reforming the tax system, expanding the tax base, and introducing new taxes such as carbon tax and property tax.
Lan may also seek to deepen fiscal cooperation and coordination with other countries and regions, especially under the framework of the Belt and Road Initiative and the Regional Comprehensive Economic Partnership. He may also play a key role in advancing China’s green finance agenda and supporting its goal of achieving carbon neutrality by 2060.
Lan’s appointment as China’s new finance chief reflects Beijing’s recognition of his expertise and experience in managing complex financial issues. He will face many challenges and tasks in steering China’s fiscal policy amid a changing economic environment. He will also have some opportunities and prospects to improve China’s fiscal situation and performance in line with its long-term development goals.