Liu He as China’s Larry Summers Makes Politburo Appreciate U.S.

By Bloomberg News

Sept. 25 (Bloomberg) -- Two days after the collapse of Lehman Brothers Holdings Inc. a year ago, an adviser sent by Chinese Premier Wen Jiabao met with a group of Harvard University scholars to help shape his country’s response.

On March 30, U.S. Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers separately made time for the same man, Liu He, on the day the Obama administration forced the ouster of General Motors Corp. Chief Executive Officer Rick Wagoner.

Top-level access in Washington and Beijing gives Liu, a 57- year-old graduate of Harvard’s Kennedy School of Government, a pivotal role in the U.S.-China economic relationship. His mission was to convey American sensibilities on the depth of the U.S. financial crisis to Wen, said Anthony Saich, a professor at the Kennedy School who attended the Sept. 17, 2008, meeting in Cambridge, Massachusetts. It was part of a fact-finding tour that included stops in New York, Washington and San Francisco.

“He’s a very sophisticated thinker, very analytical,” said Saich, who said the meeting also included Harvard economists such as Jeffrey Liebman, now a White House budget official. “He’s a key person in preparing reports that are not only going to the premier but also to the general secretary of the party,” President Hu Jintao.

When Liu returned to Beijing from the September trip, his report was made available to senior leaders, according to a person familiar with the situation whose job prevents him from speaking about Chinese officials publicly.

While it isn’t known what Liu reported, a Chinese response to the crisis wasn’t long in coming. On Nov. 9, China announced a 4 trillion-yuan ($586 billion) stimulus, which helped the economy ride out the worst of the financial turmoil.

‘China’s Larry Summers’

“Liu He is one of only a few Chinese officials who can speak the language of international finance,” said Cheng Li, a senior fellow at Washington’s Brookings Institution who met Liu in March. “He’s China’s Larry Summers.”

Unlike Summers, a frequent guest on U.S. television talk shows, Liu avoids publicity, operating within a secretive decision-making apparatus inside the burnt-red walls of Beijing’s Zhongnanhai leadership compound. At least 10 people who know him say he is quiet and modest. He turned down four interview requests for this story.

Liu’s title since 2003 has been deputy director of the office of the Central Leading Group on Financial and Economic Affairs. Participants include Wen, Vice Premier Wang Qishan and People’s Bank of China Governor Zhou Xiaochuan, according to China experts and non-governmental Web sites.

Pensions and Currency

To generate ideas for the leading group, Liu convenes meetings of economists, bankers and government officials to hash out options on everything from pensions to the value of the yuan, according to a Chinese economist who has participated.

The economist, who asked not to be named because of the sessions’ sensitive nature, described them as freewheeling and devoid of ideology.

“They will pick some hotel in a suburb of Beijing, all these people would show up, and Liu will say ‘We’re interested in exchange-rate policies, talk,’” said Victor Shih, a professor at Northwestern University in Evanston, Illinois, and author of the 2008 book “Factions and Finance in China.”

The leading group makes recommendations to the country’s cabinet, the full 25-person Politburo or its elite nine-member standing committee, led by Hu, 66, on whether to pull the trigger on government policies, the Chinese economist said.

Top Members

Liu, who holds the rank of vice minister, also gathers ideas from the Chinese Economists 50 Forum, a non-governmental group he founded in 1998 that parlays academic research into policy solutions. Members include Zhou and Lou Jiwei, the chairman of China’s $297.5 billion sovereign wealth fund.

Liu spent much of his career in the State Planning Commission, the agency that formerly set prices for everything from bicycles to grain, according to his online biography. It now writes industrial policy under a new name, the National Development and Reform Commission.

A former soldier and factory worker who was sent to Manchuria in the midst of China’s 1966-1976 Cultural Revolution, Liu helped draft the five-year plans that underpinned China’s economy. He has been a Communist Party member for more than three decades, the biography says.

In a chapter from a 2008 book Liu wrote assessing China’s 30 years of economic openness, he praised the “grey area” the country has found, moving toward a market economy without “blindly” mimicking Western models.

No Extremes

“Liu’s economic philosophy is pragmatism,” the Brookings Institution’s Li said. “He will not be obsessed with two extremes. One is market fundamentalism and the other is the previous planned economy, which completely failed.”

He has that in common with Summers’s great rival, Joseph Stiglitz, a Nobel-prize winning economist at New York’s Columbia University who served as chairman of the Council of Economic Advisers under President Bill Clinton.

Stiglitz, 66, has praised China for its crisis response, which focuses on government-funded investment in roads, bridges and factories. At a May 13 forum in Beijing, Stiglitz said China “has taken very rapid action to address the crisis” and may emerge as “a winner.”

After the Cultural Revolution delayed Liu’s education, he entered Beijing’s People’s University in 1978, earning a master’s degree in economics, his biography said.

Liu studied management at Seton Hall University in South Orange, New Jersey, in 1992-1993 and spent the next two years at Harvard, earning a master’s degree in public administration in 1995, according to school records.

“One got the sense of an individual whose entire resume had prepared him for his difficult tasks,” said Dennis Wilder, who until January was Asia director at the White House National Security Council and met Liu in March. Wilder now is a visiting fellow at the Brookings Institution.

“He would be an extremely strong player in the game of bilateral poker: well grounded in the technical issues, non- polemic, and with an in-depth understanding of the United States,” Wilder said.

--Michael Forsythe, Dune Lawrence. Editors: Bill Austin, Anne Swardson

To contact Bloomberg staff on this story: Michael Forsythe in Beijing +8610-6649-7580 or mforsythe@bloomberg.net Dune Lawrence in New York at +1-212-617-4510 or Dlawrence6@bloomberg.net.