Central banks in many major economies are independent of their governments. China's is not. There was no better illustration of this stark reality than when Zhou Xiaochuan withdrew from the annual International Monetary Fund and World Bank meetings in Japan this week.
Zhou was due to give a keynote lecture in Tokyo, but Beijing degraded his delegation, apparently as a snub to his Japanese hosts over the Diaoyu Islands row.
The row has understandably inflamed Chinese nationalist sentiments, but it's a real stretch to link it with monetary policy and recovery of the world economy, which is still in a perilous state. But, when everything is tied to the state, everything can become political. At this politically sensitive time when China will undergo a once-in-a-decade leadership transition, nationalist concerns easily trump economic rationality.
The world's second- and third-largest economies, China and Japan respectively, both face tough times ahead. Why not let economics help calm the diplomatic dispute between two of Asia's largest trading partners? Japanese Prime Minister Yoshihiko Noda said as much this week. "These are the second- and third-largest economies in the world and our interdependence is deepening," he said. "If our ties cool, particularly economic ones, then it isn't a question of one or the other country suffering. Both countries lose out."
It has, in fact, been the long-standing policy of Noda's Democratic Party to promote China trade. But like Beijing, his administration has to deal gingerly with nationalist sentiments. It was in this context that his government felt compelled to purchase three islands in the Diaoyus last month after the hardline nationalist Tokyo governor, Shintaro Ishihara, threatened to buy them.
China has long argued it deserves more voting rights in the IMF commensurate with its economic clout. By snubbing the meeting, it has weakened its own argument. If Zhou had attended, he might have upset a few mainland nationalists. But it would have been an opportunity to teach the public about China's economic reality. After all, the rationale of one-party rule has always been that papa knows best what's in everyone's interest.