Outward-Looking Chinese Finance Minister Should Champion Reforms at Home

China’s economic reformers are cheering the appointment of Lou Jiwei as Finance minister. Lou, 62, spent the past six years as chairman and CEO of China Investment Corp., the nation’s $480 billion-plus sovereign wealth fund. He’s arguably the best-qualified finance chief since the People’s Republic was founded in 1949.

Lou will oversee a 14 trillion-­yuan ($2.25 trillion) government budget, the biggest after the U.S.’s. Beijing chose him for his global outlook and his reformist credentials. As a vice minister of Finance from 1995 to 2007, Lou supported overhauling state-owned enterprises, including China’s once-decrepit banks. From 1998 to 2003 he served as a senior adviser to then-­premier Zhu Rongji on financial market reforms.

“Lou Jiwei’s appointment as Finance minister is significant,” says Laurence Brahm, a Beijing-based American lawyer who worked with Lou on those efforts. Brahm notes that new Premier Li Keqiang is restarting many of Zhu’s reforms, which had been put on hold for almost a decade under Li’s predecessor Wen Jiabao.

Besides an ability to work with the bureaucracy, Lou brings insight into China’s relationship with the world, says Paul Schulte, an adjunct finance professor at the Hong Kong University of Science and Technology and a former Asia strategist for Lehman Brothers and Nomura Securities. As CIC boss, Lou helped the country navigate the 2008–’09 financial crisis and assert itself as an international investor. Lou and his aides founded the fund in 2007 with $200 billion from China’s foreign exchange reserves, now the world’s largest at $3.2 trillion. His subordinates at CIC called him “minister” because they knew he coveted the top post at the Ministry of Finance. Under Lou’s watch the fund rapidly expanded its international holdings and opened offices in Hong Kong and Toronto.

“His appointment shows that his experience and knowledge of global finance is a key asset in shaping policies and allocating resources at the ministry as China continues to further integrate into the global economy and is set to become a major player in global finance,” says Hubert Tse, a partner with Shanghai-based law firm Boss & Young whose clients include sovereign wealth funds, Chinese asset managers and foreign hedge funds.

Lou will have his hands full at home, however. One of his first challenges is dealing with rising local government debt, which stands at 10.7 trillion yuan, or roughly 20 percent of China’s GDP. Local governments still aren’t allowed to issue bonds, and banks hold most of their debt. Lou will need to tap his political and money management skills to sort out this mess, which has the potential to trigger a national banking crisis.