The appointment of Li Yunze as Party secretary of the newly created National Financial Regulatory Administration signals Beijing's focus on grooming the post-Xi generation, its worries about the state of local government finances and lack of emphasis on China's Open Door policy.  

This is the first time a Chinese official born after 1970, the so called Seventh-Generation, has been appointed to a ministerial level position. Li, who was made an Alternate Member of the Central Committee at the 20th Congress, is not believed to be a member of Xi Jinping's faction. 

His meteoric rise reflects the CCP leadership’s desire to develop a younger generation of leaders, particularly in view of the fact that Xi may likely remain paramount leader at least until the 22nd Party Congress in 2032. 

By the early to mid-2030s, most Sixth-Generation leaders (born in the 1960s) might be too old to join the Politburo Standing Committee. Xi Jinping has deliberately avoided appointing immediate clear successors, which has increased long-term political risk in China. 

The grooming of the next generation of leaders is a good sign, and shows how secure Xi feels about the next ten years. 

Li is among a handful of 7G cadres who first established their reputation in the banking sector. He worked at the China Construction Bank (CCB) for more than 20 years and was promoted vice-president of the Industrial and Commercial Bank of China – one of the world’s largest financial institutions – in 2016. Two years later, he became a vice-governor of Sichuan Province, where he took charge of regulating the financial industry in one of China’s largest administrative units.

During his time at CCB, Li oversaw the bank's business in Tianjin and Chongqing, two of China's largest debt-laden regions. He is an expert in dealing with local governments and tackling the financing issues in China's less developed regions. He has also overseen several risky disposals in the banking sector as well as established the first provincial bank in Sichuan province. 

Li's choice reflects Beijing's worries about the state of local government finances and tackling the mountain of hidden debt that still plagues localities. 

At its last meeting in late April, the Politburo, China’s top decision-making body, called for strengthening the management of local government debt and controlling the increase in hidden debt. Xi Jinping himself highlighted defusing local government debt risks in an article published in February by Qiushi, the party’s official journal.

He wrote, “It is necessary to consolidate provincial-level governments' responsibility to prevent and resolve hidden debts, increase efforts to dispose of outstanding hidden debts, optimize the maturity structure of debts, reduce the interest burden, steadily promote the unified supervision of local government hidden debt and on-the-books debt, and resolutely curb the increase of hidden debt,” adding that the governance of local government financing vehicles (LGFVs) should be strengthened “to help them transform.”

The real estate crackdown and falling land sale revenues have hurt local governments' finances while both on-the-books and hidden local government debt have continued to increase. In order to improve the financial situation of local governments, Beijing is relying on provincial governments to take the lead in optimising and strengthening the financial system. 

Conclusion

Li is seen as the right man to oversee Beijing's ongoing effort to tackle China's intractable local government debt problem.

He is highly skilled in his dealings with local government and debt issues. But, he has no international experience, doesn't speak English and has never worked in China's most developed Yangtze and Pearl River Deltas.

His appointment highlights that Beijing's planned overhaul of the financial system does not reflect Premier Li Qiang’s emphasis on expanding China’s Open Door policy and enticing Western and Asian investors.

On the contrary, its internal focus dovetails with Xi’s emphasis on strict Party control of the financial sector.  The relentless anti-corruption drive and now an intensifying anti-espionage crack-down that has snared well-known multinationals, is a sign that the regime has no intention of returning to a true 'Opening Up'. That's bad news for Western investors.