Governor of the People’s Bank of China
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.
Source:
http://online.wsj.com/news/articles/SB10001424052702304200804579164003669215172
Although the statements and ideologies of Central Bank Chairman Zhou Xiaochuan are both appropriate and preferable, the fact that he did not resign at the designated age limit is a bit unsettling. No matter how effective a political figure with significant authoritative power is, the rule of law must always be upheld. The effectiveness of the rule of law guarantees certain rights to its constituents. This certainty facilitates investment. Even though this is not the issue at hand, the administration of law is important to development. Unambiguously, Zhou’s dedication to “promoting trade and investment, improving financial services in the real economy and improving people’s livelihood” highlights important goals for the country, and I look forward to seeing China realize these reforms. But, in the meantime, Mark’s comments made me consider the potential negatives from political figures circumventing the regulatory framework.
In a related article, Zhou Xiachuan argues that China should let private capital set up banks. The fact that Zhou did not resign at the designated age limit and is pushing for private capital to drive a main component of the economy is a little troubling and could be suggestive of some corruption. Zhou claims he wants the private capital to help banks better serve the small and micro companies, which could be a good strategy for helping out the local economy because it would most likely result in increased lending and expanding financial services into rural areas around China.
Source: http://english.caixin.com/2013-09-16/100583153.html
I generally think Central Banks have way to much power, at least in terms of how incapacitated the political systems of so many countries (ie. US, Greece, Italy, etc.) are right now. In China, I think the risk of problems from a continuation of his term is dramatically lower as the PBOC is not independent of the government. That distinction, combined with the fact that continuity is so valued (for better or worse) by financial markets to me indicates that in China this may be an alright outcome.
Through my research on Walmart’s supply chain and pollution due to Coal Factories, both studies showed that little in the way of bank loans were available for small sized start ups in China. Energy plants could not always find funding to bring their facility up to the new pollution control mandates and therefore had to close. Similarly, Chinese manufacturers had to depend on vendor managed inventories or Walmart for some sort of financial backing. Mr. Zhou’s goals of facilitating lending to smaller borrowers and competitive private banks will help the rising Chinese middle class continue to see incomes rise and new opportunities outside of factory and farm work.