Who is Lan Foan, China’s new finance minister? Why is his appointment crucial?

Beijing, China

Amid a deepening economic crisis driven by the crumbling real estate sector, China has appointed a new finance minister who is tasked with steering the nation away from the troubled waters.

A statement released by the finance ministry on Thursday (Sep 28) revealed that finance specialist Lan Foan will now helm the Ministry of Finance’s Communist Party group, replacing Liu Kun.

The 61-year-old leader was previously holding the position of the party chief of the northern Chinese Shanxi province.

Liu Kun, who held the coveted position since 2018, will turn 67 this year, much beyond the normal retirement age of 65 for civil servants of ministerial rank.

‘Positive development’

According to experts, the change in leadership in the finance ministry is a positive development for the country’s economic outlook. 

Zhang Zhiwei, chief economist at Pinpoint Asset Management, was quoted by SCMP as saying that the finance ministry reshuffle is “a positive development” for the economy and “indicates the policy stance may become more expansionary”, but it could take time.

“The change of policy may not happen immediately, as we are already close to the end of this fiscal year. Nonetheless this move makes a change in fiscal policy more likely next year, which is positive for the economy,” he said.

Provincial governments under stress

One of the biggest challenges before Lan Foan would be to tackle the burgeoning debt crisis on the provincial level. China has traditionally relied on provincial governments to inject financial stimulus into the economy but now experts warn that the central government should shoulder more burden.

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“Currently, many local governments are financially stretched, and Beijing is reluctant to push through more local government-led fiscal stimulus. The central government could shoulder more of the burden, but remains reticent,” Louis Kuijs, chief economist for Asia-Pacific at Standard and Poor’s Global Ratings, was quoted as saying by SCMP.

China’s hidden debt problem

There are also potential default risks posed by local government financing vehicles (LGFVs) in China, primarily stemming from subdued revenue growth prospects in some highly indebted regions of the country.

LGFVs are unique entities that straddle the line between public and corporate, initially designed to navigate around constraints on local government borrowing. Their prevalence has surged since the 2008 global financial crisis.

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According to estimates from the International Monetary Fund, China's total LGFV debt has surged to a historic 66 trillion yuan (equivalent to US$9 trillion) this year, more than doubling the 30.7 trillion yuan recorded in 2017.