High flyer

In China’s political dictionary the term luotui, or ‘naked exit’, applies to people retiring completely from all political positions, a rare feat in a country where leaders like to linger long after they have left office.

The phrase was made popular by former vice-premier Wu Yi. “I will retire entirely. This is called luotui. I have made clear to the central authorities that I would take no position in official, semi-official or non-governmental bodies. I hope you will forget me completely,” she announced at a conference in late 2007, months before she stepped down.

Once known as China’s Iron Lady, Wu drove bulldozers at the state oil firm CNPC in her youth but spent most of her later career piloting China’s trade ties with the rest of the world.

Wu was a sparring partner for former US Treasury Secretary Hank Paulson when the two countries established the biennial US-China Strategic Economic Dialogue (Paulson has described her as China’s most persuasive official and “a force of nature”).

Wu never married but she now has a renewed family connection in the Chinese government’s financial apparatus. Xiao Jie, newly appointed as finance minister, is her nephew. Xiao is notoriously low profile, thus the connection with Wu, a technocrat under former economic tsar Zhu Rongji, might help us to understand a little more about China’s new money man.

Guanxi (or connections) certainly help when it comes to establishing a political career in China.

However, personal connections alone are rarely enough for someone to make it to the very top. And Xiao Jie is said to share the work ethic of his aunt, who climbed to the top with her dedication to her job. “As a friend and colleague for more than 20 years, I have witnessed first hand that his [Xiao Jie’s] success is because he has worked much harder than anyone else,” Yao Gang, former vice chairman of the China Securities Regulatory Commission, wrote in the China Times in 2008.

That article is now being widely quoted by Chinese media because public information on Xiao is otherwise scarce. He was born in 1957 in Liaoning’s Kaiyuan, and his appointment means that for the first time since 1992, the minister of finance is not from Zhejiang or Jiangsu, traditionally two of the most affluent Chinese provinces.

Like many senior leaders before him, Xiao began as an engineer, working in an electrical machinery plant in 1976. At the end of the Cultural Revolution, he grabbed his chance to go to Renmin University, where he obtained a bachelor’s degree in finance in 1982.

That proved to be the catalyst for a lifelong career as a financial technocrat.

On graduating, Xiao became a junior official in the Ministry of Finance (MoF) aged just 25. He rose up the government ranks quickly. According to WePolitics, a popular blogger on WeChat who writes about politics and is widely quoted by the print media, Xiao has set records as the youngest person to serve in a number of the jobs he has taken during his career. In 1993 he became a deputy director at the planning department of the MoF; in 1998 he was promoted to become director of the MoF’s general office; and he became vice-finance minister in 2001.

Having the experience of governing a large municipality is an important credential for aspiring Chinese politicians. And Xiao has this on his resume as well. From 2005 to 2007, he served as the vice-governor of Henan province (where Wu Yi also started her administrative career after leaving CNPC). After that three-year stint Xiao returned to the central government and was promoted to become the director of the State Administration of Taxation, making him China’s youngest tax bureau chief.

“Xiao joined the MoF at 25, climbed to the directorial grades aged 36, and was promoted to the ministerial grade and the Central Committee at 50. For outsiders he is a high flyer but many people don’t understand that below the halo he has worked so hard and made a lot of sacrifices,” Yao wrote in China Times.

“One can say 70% of his success is down to hard work and 30% is because of luck. But he has his ‘luck’ because he has fully prepared himself whenever an opportunity arises.”

According to China Times, Xiao smoked heavily during his time in Henan. But the folklore is that he puffed on packets of Zhongnanhai, the most common cigarette brand, to prevent people from gifting him more expensive tobacco.

In 2007 Xiao was elected as one of the 300 or so members of the ruling Central Committee of the Party. Before his appointment as MoF boss earlier this month, he served as deputy secretary-general of the State Council, and as a key aide to Chinese Premier Li Keqiang. Xiao was seen regularly on Li’s inspection tours across the country.

Xiao is considered one of the savviest of the current crop of Chinese financial technocrats. In 1987 he was picked by the Party to further his studies in what was then West Germany and in 1998 he obtained a PhD degree in economics at the MoF’s Research Institute for Fiscal Science.

According to WePolitics, it has become a “quasi tradition” for former tax bureau chiefs to take over as MoF boss. Lou Jiwei, Xiao’s predecessor and a protégé of former Premier Zhu Rongji, was a significant player in driving the drastic tax reforms in the mid-1990s (key initiatives included separating the central government’s tax income from the provinces and the municipalities) and Xiao was another of the masterminds behind the reforms as well.

“Lou and Xiao have worked closely for at least 29 years,” WePolitics suggests, pointing to the fact that the duo co-authored a research paper in 1987 on fiscal changes.

In 2009 Forbes published the Tax Misery Report in which it suggested that China had the second most punitive tax regime in the world (France topped the chart). Xiao then authored another lengthy academic paper (published in China Reform, another journal under the Chinese cabinet) rebuffing the claims.

Lou’s departure seems to have raised an eyebrow among some international observers, who have generally regarded the 65 year-old as a reformer by instinct. However, Chinese media was less surprised by the handover, given that Lou has reached the mandatory retirement age for bureaucrats. Because of the duo’s close working relationship, China Daily says the reshuffle won’t have a major impact on the country’s fiscal policies, or ongoing changes in key areas such as the planned property tax (potentially a vital source of government income but which has so far only been tested in pilot projects in Shanghai and Chongqing).

“Such reforms have been decided by the central authorities and will not be changed by the replacement of the minister,” Liang Haiming, chief economist of China Silk Road iValley Research Institute, told China Daily.

“The new minister will also make efforts to push the property tax reforms, since it is a task that China must accomplish,” it added.

The new finance minister also needs to meet the challenge of forging a relationship with the incoming US Treasury Secretary. It’s not yet clear who Donald Trump might pick for this key job, but Xiao will need to persuade his counterpart of the dangers of following through on some of the protectionist rhetoric that the New York tycoon used on the campaign trail. That tends to suggest it will be a challenging time to be China’s finance minister…

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