The People’s Bank of China sets short-term interest rates (like the Fed) and tries to control bank lending to support growth while keeping inflation low. It also determines how freely the Chinese currency’s exchange rate can move and manages restrictions on the flow of money in and out of China. Last week, the government increased the central bank’s oversight responsibilities, putting it in charge of drafting key banking regulations.

What Mr. Yi will do with all this power matters for the whole world.

China’s mostly state-owned banking system is burdened with bad loans to state-owned enterprises, many of which are unprofitable, and the pet projects of powerful provincial leaders. Mr. Yi must push these banks to clean up their books. Otherwise, depositors might eventually lose confidence and pull out their savings. China’s banks manage investments and make loans in many other countries, so turbulence in those banks could infect financial markets worldwide.

And if China’s banks falter, that could set off a sharp drop in growth because China would no longer be able to rely on debt-fueled spending to keep its economy growing. If China’s growth slows, Chinese consumers and companies would import less, and the government would then try to increase exports to resuscitate growth — exactly the opposite of what the United States and most other countries want. That could set back economic recovery for the rest of the world, depress international prices of commodities and other goods, and escalate trade tensions.

Mr. Yi must come up with a policy that changes the incentives for banks. As long as loans to state-owned enterprises are guaranteed by the government, banks will keep making them. Mr. Yi can’t end that policy on his own, but he can tell bankers that they can recognize bad loans on their books without worrying so much about keeping their unprofitable state-sponsored clients afloat. And he can encourage them to focus instead on lending to private firms at the higher interest rates that they are now allowed to charge.