China on Monday elevated the status of its current foreign minister and selected a new defence minister as the country deals with rocky relations with the United States and expands its military.

The rubber-stamp National People's Congress endorsed the appointment of Foreign Minister Wang Yi, 64, as state councillor, making him a ranking member of the country's "cabinet".

He replaces Yang Jiechi, China's former top diplomat, who was tipped for a leading role in managing Beijing's increasingly uncertain relations with the US under President Donald Trump.

While Yang was known for his good relationships with former US officials, it is unclear what advantages Wang, who was once ambassador to Japan, would have for handling the sensitive relationship at a time of growing trade tensions.

China's chief diplomat also faces ongoing regional maritime disputes in the South China Sea, with Beijing facing criticism over its construction of artificial islands capable of hosting military equipment.

Monday's government reshuffle included the naming of General Wei Fenghe, 64, as minister of defence.

He was formerly the head of China's strategic missile force and is seen as having played a key role in President Xi Jinping's effort to reform the military.

Earlier this month, Beijing announced an 8.1 percent increase in military spending in 2018 as it seeks to modernise its forces and expand its capabilities. China opened its first overseas base in the Horn of African country of Djibouti last year.

Wang and Wei were among a raft of appointments approved by the parliament, including US-educated economic reformer Yi Gang as the new governor of the central bank and Fu Zhenghua as the new minister of justice.

Fu, who was once Beijing's top cop, is thought to have led the investigation into Zhou Yongkang, the former security czar who was jailed in 2015 as part of Xi's anti-corruption campaign.

Commerce Minister Zhong Shan was kept at his post and faces the tough task of dealing with a potential trade war with the United States.

US-educated reformist takes over China's central bank
Beijing (AFP) March 19, 2018 - US-educated Yi Gang, a reform-minded deputy governor of the People's Bank of China, was appointed on Monday to take over the reins of the central bank.

Yi, who taught at Indiana University before returning to China, was elected by the rubber-stamp National People's Congress with 2,965 votes in favour, two against and two abstentions.

Another American-educated official, President Xi Jinping's top economic adviser Liu He, was appointed as one of the China's four vice premiers and is widely expected to take over the portfolio overseeing the country's financial and economic sectors.

Both men speak fluent English and have pushed for economic reforms.

While at the PBOC, Yi called for further internationalisation of China's currency and greater market access for foreign investors.

At a press conference earlier in the annual parliamentary session, Yi said the central bank would work to push through reforms that will bring about "equal treatment for domestic and foreign investors".

The United States and Europe have repeatedly complained that foreign firms face major hurdles to do business in China, including being forced to share their know-how and technology with local partners.

Earlier this year, Yi wrote an op-ed in local business weekly Caixin pushing for the further reform of China's renminbi, which has long been allowed to fluctuate within a set range.

"The PBOC will continue to deepen the reform of the RMB exchange rate," he wrote, adding the central bank will strengthen "the market's determination of the exchange rate."

A shakeup in China's bureaucracy announced last week will give the central bank more power to push through such reforms.

The PBOC was given the responsibility of drafting new laws and regulations for the banking and insurance sectors, and with it new authority over China's financial system.

An economic reformer, Yi studied in the US and earned a tenured position at Indiana University before returning to China to take a position at Peking University.

From there he moved to the central bank and rose within its ranks under Zhou Xiaochuan, who has led the bank for more than a decade, providing stability for China's monetary policy.

Yi's appointment as governor will ensure a continuation of policy and stability as the world's number two economy faces challenges ahead.

Top among the risks is China's ballooning debt, which has rapidly expanded since the financial crisis last decade.

Analysts who compare the growth of debt in China with that seen in other countries say it resembles trends that precipitated financial crises elsewhere.

"The PBOC is in a very difficult position, because if it's trying to deleverage in any significant ways that's going to put an enormous amount of financial stress," said Christopher Balding, a Peking University economics professor.

"But they are not going to accept that trade-off."

- Rocky US ties -

Relations with the US are also among the first challenges Yi and Liu He are likely to face.

The Trump administration is expected to unleash new tariffs on Chinese imports in the coming months while the Federal Reserve is projected to raise interest rates as the US economic recovery continues.

Both policies will be felt in China and may force responses from its central bank.

In December, the PBOC increased the amount it charges lenders hours after the Fed hiked interest rates. That raise followed a similar move in March last year, which also came after a Fed rate hike.

China's central bank is often forced to respond to policies in the US to prevent cash from flowing out of China to chase better investment returns.

On trade, Liu travelled to Washington earlier this month and met with US officials at the White House, but his trip has not stopped Trump from considering new trade measures against China.

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