Chinese Mr. Forex leaves his helm at SAFE to rejoin the private sector

Zhu Changhong oversaw diversification of SAFE’s assets, stepping away from substantial US dollar dependence

The Financial Times has reported yesterday that one of the key brains behind the diversification strategy of Chinese FX reserves has left his position as top overseer at the Chinese State Administration of Foreign Exchnage (SAFE) to rejoin the private sector. Back in 2009 he has left his job at the world’s largest bond fund PIMCO to head an effort of diversification of Chinese FX reserves. He has also been quite successful at it too – not an easy job considering the size of the portfolio (almost $4 trillion).

He is known to be the “invisible man” since he has rarely appeared before the public. According to data from the US Treasury the share of dollar assets in China’s FX portfolio has fallen from 69% in 2009 to about 49% as of the end of 2012 when the most recent detailed statistics have been published.

With the announcement coming just a day after an “unknown” entity has taken over a problematic investment fund held by the Industrial & Commercial Bank of China we could speculate as to the reasons behind Mr Zhu’s departure. According to a Wall Street Journal article sources familiar with his work at the government said that he was reluctant to play the internal politics game that most certainly accompanies any top level government job in China.

One thing is for sure, it’s a very tough act to follow, especially considering the rapidly changing landscape in the last couple of weeks. Mr. Forex’s work will be certainly remembered by Chinese policymakers for a long while. During his tenure he managed to reduce the quantity of US government bonds in SAFE’s portfolio from 45% back in the beginning of 2010 to about 35% as of September 2013.

The Chinese FX reform is far from over, but bailouts of the shadow banking system are not good news for any progress on that front. We have to reiterate the importance of the decisions that Chinese policymakers have to make. They either have to chose some short term pain for a sustainable long term economic growth model, or risk the country’s financial system future by continuing to bailout troubled entities and encourage excessive risk taking.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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