So, it's (almost) official. Lao Lou will become the head of China's new forex investment body. Lou Jiwei of course was a key member of Zhu Rongji's braintrust and spearheaded the design of the unified tax system in 1994. Through this appointment, he will also be promoted as State Council Vice Secretary, meaning that he will report directly to Wen Jiabao. Clearly, Wen wants control over this body and likely use it for domestic policy expenditure.

China Names Top Official To Plan Fate of $1 Trillion

By RICK CAREW
February 16, 2007

BEIJING -- Meet China's $1.07 trillion man.

China has appointed a vice minister of finance to head preparations for a new agency that will invest a portion of the country's foreign-exchange reserves, according to a person familiar with the matter, putting Beijing a step closer to diversifying its $1.07 trillion stockpile of hard currency.

The government is yet to announce the appointment publicly but has said internally that Vice Finance Minister Lou Jiwei will become deputy secretary-general of the State Council, China's cabinet, and will lead preparations for the overseas investment agency, the person said.

The appointment signals that Mr. Lou will likely take charge of the institution once it is established, the person said.

Financial markets are closely watching China's plans for the new government entity, which has been in the works since late last year, for signs of how much of the country's reserves will be shifted out of ultrasafe assets such as U.S. Treasurys and into higher-yielding, more-strategic investments.

Mr. Lou's appointment is the most concrete step Beijing has taken toward establishing the agency since Premier Wen Jiabao said last month that China would "actively explore and expand the channels and methods" for using its foreign-exchange reserves.

Mr. Lou, 56 years old, has served as one of six vice ministers of finance since 1998. He holds a master's degree in economics from the Chinese Academy of Social Sciences, a prominent government think tank and educational institution, and has served in numerous financial-policy positions in the government. Immediately prior to becoming vice minister of finance, he was a vice governor of the poor southwestern province of Guizhou.

The size of the reserves to be allocated to the new agency hasn't been decided, according to the person familiar with the situation, who said the government is establishing a "framework" for the agency before finalizing details. Economists expect China will allot around $200 billion of the $1.07 trillion in reserves to the agency but caution it will move slowly to diversify the funds.

In the past, Beijing has tapped its massive reserves to recapitalize the country's biggest domestic financial institutions, including $60 billion of injections into three of China's four big government-controlled banks.

The government then transferred its ownership of those shares to Central Huijin Investment Co., a government agency charged with instituting modern corporate-governance practices at those institutions.

The person familiar with the matter said the new agency Mr. Lou is expected to head could eventually be merged with Central Huijin.

The appointment of a senior official from the Ministry of Finance to head the agency appears to be an effort to even the balance of power in the financial sector between the ministry and the People's Bank of China, the country's central bank. A former head of the central bank's research department, Xie Ping, was selected by China's leaders in November 2004 to take the top post at Central Huijin.

The central bank is widely seen among domestic officials as a stronger advocate of faster liberalization and further opening of the financial sector to foreign investment than is the Ministry of Finance.

Write to Rick Carew at rick.carew@dowjones.com