In the US, Ben Bernanke is to be imminently replaced as Chairman of the Federal Reserve as his term ends January 31, 2014. In China, the governor of the People’s Bank of China (PBOC – China’s Central Bank), Zhou Xiaochuan, was supposed to retire once he reached the mandatory retirement age of 65this past March. His retirement was further expected as he had attacked the slow pace of economic reform at the Communist Party session a year ago this November inciting some political competition within the Communist Party.
His reappointment signals that he and his policies are exceedingly popular and that he wields considerable power within the governments economic policy. Mr. Zhou’s first goal is to have deposit insurance instituted on all Chinese banks, to facilitate lending to smaller borrowers and competitive private banks. Additionally he hopes to introduce eased capital controls and gradually transition to market based interest rates. He says these reforms are needed “to further promote trade and investment, improve financial services to the real economy and improve people’s livelihood.”
Mr. Zhou will play a critical role in this transition. If reforms are not implemented prudently, however, the results could be less than ideal. Liberalizations of markets and capital flows in other countries have caused bubbles, the effect of which in China, the world’s second largest economy could be quite severe. His ability to introduce and control these changes and their effects will be critical to continued growth. Mr. Zhou must tread carefully as he does have opponents and the PBOC is not independent from government, like the US Federal Reserve. However, Zhou’s reappointment places him among the longest serving central bankers in the world’s major economies, having served since 2002. Clearly, based on his recent travel, his importance on the world stage is increasing. Mr. Zhou has become a force of his own to be reckoned with.