China considering replacing central bank head - WSJ

People's Bank of China Governor Zhou Xiaochuan addresses delegates at the UK-China Financial Forum at Lancaster House, in London June 18, 2014. REUTERS/Sang Tan/Pool

(Reuters) - Chinese central bank Governor Zhou Xiaochuan, an advocate of pro-market financial reforms, may lose his job in a reshuffling that follows internal battles over overhauling the economy, the Wall Street Journal reported on Wednesday.

Chinese President Xi Jinping is considering replacing Zhou, the paper reported, quoting officials with knowledge of the plans.

The top contender to head the People's Bank of China (PBOC) is Guo Shuqing, a former banker and securities regulator who is currently governor of eastern Shandong province, the paper said.

Xi wants more allies in top government, military and Communist Party positions, and personnel changes were expected around a major party meeting next month, the newspaper said.

It added that no final decision has been made about the central bank post. In a statement to the Wall Street Journal, the PBOC said Zhou, 66, would not be stepping down soon.

Zhou, who has led the central bank for the world's second-largest economy since 2002, has been the architect of broad financial reforms that have spawned fledgling capital markets, liberalized some interest rates and broken the peg between China's yuan and the U.S. dollar.

He was reappointed as the PBOC chief in March 2013, although he had already reached the normal retirement age of 65 for cabinet-ranked Chinese officials.

China's economy has stumbled in recent months. It is at risk of falling short of the government's 7.5 percent growth target, raising investor expectations that policymakers would further loosen fiscal and monetary policy to stoke growth.

However, senior leaders, including Premier Li Keqiang, have publicly ruled out any dramatic policy easing, saying China cannot always depend on easy credit to lift its economy. Instead, he said authorities would only make "targeted" adjustments in the economy as needed.

The central bank, which unlike its peers in the developed world does not have autonomy over monetary policy, has refrained from steering public expectations about its next move.

"We do not think a change in leadership at the central bank would suggest anything about a switch in the orientation of macro-economic or monetary policy," Nicholas Consonery, director for Asia at the Eurasia Group, said in a note.

"If anything the rumours circulating about sharp divisions over monetary policy more reflect the government's inability to manage its own message than about Zhou's retirement."

A trained engineer, Zhou has been known for close ties to Western officials, and has been the object of ire from conservatives within the Communist Party.

Talk that he was set to retire and would be replaced by Guo, the former head of China’s securities regulator, has been circulating in Beijing for weeks. When asked by Reuters, the central bank and a person close to Guo have denied the rumours.

When the news broke in March 2013 that Zhou would not be retiring, financial markets took it as a sign China was serious about pushing through sweeping reforms. But more than a year later, a handful of anticipated changes have yet to materialise.

An insurance system for deposits that is seen as a precursor for a further liberalisation of interest rates has yet to be unveiled. Senior central bank officials have said repeatedly that one would be rolled out as soon as possible.

The lack of a deposit insurance system has, in turn, clouded the timetable for freeing interest rates. To protect bank margins, China imposes a ceiling on the rates that banks pay savers. Analysts say that artificially lowers credit costs and encourages wasteful investment.

Zhou said in March that China would liberalize deposit rates in one to two years, but a month later, he was publicly contradicted by his deputy, who said China wasn't ready.

By July, Zhou was further dialling back expectations. He said whether China can meet its "internal timetable" on rates liberalisation depended on external conditions, and that he believed it could be done within two years.

(Reporting by Gui Qing Kohn and Jason Subler in Beijing; Writing by Rodney Joyce and Tim Ahmann; Editing by Jeffrey Benkoe)