Chinese leader Xi Jinping is considering replacing central bank chief Zhou Xiaochuan. The WSJ's Lingling Wei tells Deborah Kan about why Beijing may be looking for a new steward for the world's second-largest economy.
BEIJING—As China considers a change of guard at its central bank, Chinese leaders face a larger question: Are they willing to tolerate slower economic growth?
Top-level discussions about the possible departure of Zhou Xiaochuan, the long-serving governor of the People's Bank of China and a strong advocate for market-oriented reforms, come as the likelihood is rising that the world's No. 2 economy may fall short of the government's annual economic growth target, 7.5% for 2014, for the first time since the Asian financial crisis of 1998.
Many economists say Beijing may have to resort to more big-bang measures—such as a blanket interest-rate cut that, according to central bank advisers, has been fended off by Mr. Zhou—to rev up economic activity.
Those moves, however, would mean Beijing returning to its old handbook of putting a priority on stoking growth. The emphasis on growth might exacerbate already high levels of debt and delay reforms leaders say they want to put the economy on a more sustainable path.

Mr. Zhou is seen by many officials and economists as willing to hold the line against short-term growth to put in place financial reforms such as interest-rate liberalization that would better allocate credit and, many say, better serve the economy over the long term. So his fate is seen by some as a measure of the leadership's commitment to reform.
China's stock market rose to an 18-month high Thursday as investors bet that Mr. Zhou's potential departure could usher in an era of looser monetary policy. Easier credit conditions usually help stocks.
"Regardless of who is in charge of the central bank, it all depends on the economy," said Zhang Bin, a senior research fellow at the Chinese Academy of Social Sciences. "If the economy weakens further, the leadership will be less willing to push for reforms that could introduce greater risks to the system."
So far, Chinese leaders have sent mixed messages about what they would do. In June, Premier Li Keqiang told local party chiefs from across the country that the 7.5% target was "legally binding." Yet in a speech this month, Mr. Li seemed comfortable with growth coming in "slightly higher or lower" than the target, saying China can't always rely on easy credit to spur the economy. He further pledged to maintain the government's focus on economic overhauls.     
The changing message, however, has left analysts sharply divided on whether the government is more committed to growth or to reform. "The government's reluctance to use stronger stimulus is understandable given the leap in China's leverage and excess capacity in recent years," said Tao Wang, an economist at UBS "But its resolve may be increasingly tested."
Ms. Wang is among the economists who say they expect a rate cut either by the end of this year or early next year, while another camp that includes Ting Lu at Bank of America Merrill Lynch says such a move remains unlikely.
China's economy has been wobbling in recent months, dragged down by a sluggish property market, which accounts for a quarter of the country's gross domestic product, and by a widening corruption crackdown that has cast a chill over spending and investment.
To counter the effects of the global financial crisis, China in 2008 launched a massive stimulus plan, which helped lift the Chinese economy but also saddled it with debt. Back then, Mr. Zhou warned then-Premier Wen Jiabao that the stimulus was going on too long but his advice was ignored, according to Chinese officials with knowledge of the matter. The result was that the PBOC was late in trying to contain the resulting inflation, and China's debt problems also worsened.

China's Communist Party chief Xi Jinping is considering replacing Mr. Zhou as part of a wider personnel shuffle that also comes after internal battles over economic overhauls, The Wall Street Journal reported Wednesday. A final decision has yet to be reached, party officials told the Journal.
In a statement, the PBOC denied that Mr. Zhou would be stepping down soon.
The top candidate to succeed Mr. Zhou is Guo Shuqing, a former banker and top securities regulator who is governor of Shandong, a prosperous eastern province, the party officials said. Mr. Guo couldn't be reached to comment. An official in the Shandong provincial government said there is no "official confirmation" on Mr. Guo going to the central bank.
Unlike the Federal Reserve, the PBOC isn't independent of the government; it needs approval from top leaders for policy matters and often has to battle with other government agencies on issues such as whether or when to change interest-rate policiesand how to overhaul the country's financial sector.
A commuter walks past the People's Bank Of China (PBOC) headquarters in Beijing. Bloomberg News

Over the past few months, Mr. Zhou, who has headed the central bank since 2002, has resisted pressure from other parts of the government to broadly stimulate the economy for fears of deepening China's debt problems, according to the central bank advisers.
Instead, the PBOC has launched a number of easing measures aimed at specific sectors such as public housing, rural areas and private businesses.
On the other hand, Mr. Zhou has pressed for interest-rate liberalization and other market changes that would introduce more competition into China's lumbering banking system.
In March, he said China could free up interest rates within two years, becoming the first senior Chinese official to put a concrete time frame around what previously was only a vague promise by the leadership. But, some economists said, promoting such changes may be out of sync if the leadership is more concerned about growth.
"Zhou's retirement, whenever it comes, will have limited implications for monetary policy, but it will inevitably create more uncertainty about the progress of financial reform," said analyst Chen Long at Gavekal Dragonomics, a research firm in Beijing.
—Bob Davis contributed to this article.