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CHINA'S BANKERS BRACE FOR ZHOU

Two years ago Zhou Xiaochuan was expected to be named governor of the People's Bank of China, the country's central bank; instead, he wound up as head of the China Securities Regulatory Commission.

But having brought a modicum of order to China's chaotic stock markets, the 54-year-old Zhou has now been named China's central bank chief.

The bankers who run the country's inefficient and opaque institutions may wish Zhou had stuck with the stock market.

At the regulatory commission he led the drive to reform casinolike stock market practices. The commission oversaw the first company delisting and improved disclosure. His "reformist credentials are pretty rock solid," says Andrew Xie, chief economist at Morgan Stanley in Hong Kong. Zhou's aggressive changes, however, angered investors, who blamed him for the bear market.

He's facing a bigger struggle today. Inefficient and corrupt lending has poured vast sums into moribund state industries. Moody's estimates bad debts at the Big Four state banks at more than 40 percent of their total loans.

Zhou's lines of authority have yet to be clearly defined. A new China Banking Regulatory Commission may take over bank supervision. But Zhou, who was former prime minister Zhu Rongji's right-hand man, will no doubt oversee the reform effort as People's Bank boss.

With a Ph.D. in systems engineering from prestigious Qinghua University, the politically well connected Zhou rose from membership on the State Commission for Restructuring the Economy to assistant minister of foreign trade to deputy governor of the central bank to president and CEO of China Construction Bank (one of the Big Four) to regulatory commission head to central bank boss.

"He's a deep-thinking person and a solution finder. He's not a person to avoid a problem," says Xing Dong Chen, chief economist at BNP Paribas in Beijing. The problems of China's banks would be hard for any central banker to avoid.