Advertisement
Advertisement
China economy
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Zhou Xiaochuan, governor of the People's Bank of China, has been a chief architect of currency policy for more than a decade. Photo: Xinhua

Where is China's central bank chief? Doubts over yuan’s direction grow, but no-one's seen or heard from Zhou Xiaochuan

Under two prevailing theories, Zhou Xiaochuan’s silence is due either to changes in how China’s policies are decided, or his refusal to speak is part of the bank’s larger strategy to manage markets

If there’s one person who could explain Beijing’s yuan policy to a global audience it’s Zhou Xiaochuan, China’s central bank chief for the past 14 years.

But as investors across the world have been watching intently for any clues about Beijing’s intentions, Zhou has been strangely quiet for several months.

In August, China surprised markets when it devalued the renminbi by 2 per cent. He addressed the issue at a meeting of central bankers from the G20 bloc held in Ankara the following month, defending the move as a step towards giving the market a bigger say in the yuan exchange rate. But he has said little since, fuelling questions over where the currency is headed.

Many leading financial figures, including Christine Lagarde, the head of the International Monetary Fund, and former US Federal Reserve chairman Ben Bernanke, have publicly cited China’s poor communication as a source of unnecessary market turmoil, although they have not named Zhou specifically.

He was also absent from the World Economic Forum in Switzerland that wrapped up last week, even though China was a key topic.

READ MORE: The man who pushed for a global yuan - China’s central bank governor Zhou Xiaochuan

Fang Xinghai, an adviser to the Chinese leadership, attends the World Economic Forum annual meeting in Davos, with IMF chief Christine Lagarde. The central bank governor did not attend. Photo: AFP

Scott Kennedy, a director at the Washington-based Centre for Strategic and International Studies, said he was “very surprised” that China’s Davos delegation was headed by Fang Xinghai, a stock market regulator and adviser to the leadership, and Chinese Vice-President Li Yuanchao.

Li is not directly involved in economic affairs, while Fang lacks the authority to explain the overall yuan strategy.

Billionaire investor George Soros grabbed headlines by saying a hard landing by the Chinese economy was “unavoidable”.

Li Keqiang or Zhou [Xiaochuan] should have been there
Scott Kennedy, Centre for Strategic and International Studies, on Davos

Premier] Li Keqiang or Zhou should have been there,” Kennedy said.

Zhou, the People’s Bank of China (PBOC) governor, is a chief architect of the country’s currency policies. He is the longest-serving central bank governor within the G20 forum of nations. Few Chinese officials can rival Zhou’s expertise and authority on the yuan, and his fluency in English is the icing on the cake.

His absence from the public stage is a sharp departure from his handling reaction to a milestone change in currency policy a decade earlier.

Zhou was a widely seen figure when China announced the yuan’s revaluation and de-pegging from the dollar on July 21, 2005. Within 48 hours, Zhou was on state television explaining the central bank’s thinking.

In the following weeks, he seized many opportunities, from the opening of the PBOC’s Shanghai branch to his attendance at a gathering of central bankers in Canada, to address questions that the market wanted answered about the yuan.

READ MORE: Princelings’ hands seen in plans to retain elderly bank chiefs

Former US Federal Reserve chairman Ben Bernanke speaks at the World Business Forum in Hong Kong in June 2015. He has called on China to address uncertainties over its yuan policy to help ease market turmoil. Photo: AFP

At a press conference on August 13, two days after China’s yuan revaluation, his deputy, Yi Gang, and his assistant, Zhang Xiaohui, faced questions from the international media.

According the central bank’s website, Zhou’s recent schedule included a meeting with his Belarusian counterpart, Pavel Kallaur, a lecture on anti-corruption efforts given within the bank and a symposium about digital currency.

So why has Zhou repeatedly failed to comment? The PBOC has not responded to questions about the issue. His silence could be regarded as a sign of a deep-rooted conflict between the domestic decision-making system and the country’s aspirations to make the yuan a global reserve currency and, more broadly, to become a responsible player in global economic governance, analysts say.

“The absence of clear guidance about China’s intentions towards the yuan increases foreigners’ unease about the Chinese Communist Party’s opacity and damages confidence in Chinese policymaking,” said Alan Wheatley, an associate fellow in international economics at Chatham House, a British think tank.

China must accept that reserve currency status confers ... responsibilities
Alan Wheatley, Chatham House

While China was convincing the international community to accept the yuan as a reserve currency, “China must accept that reserve currency status confers certain responsibilities”, said Wheatley, who edited a collection of essays called The Power of Currencies and Currencies of Power.

Zhou’s silence could also reflect a change in China’s policymaking process.

He was named a vice-chairman of the Chinese People’s Political Consultative Conference in 2013, an honorary position that holds little real power but gives him state leader status. Under China’s political structure, this is a necessary step for him to hold the central bank governor office.

Zhou has been trying to promote China’s financial liberalisation for decades and is still widely regarded as a capable technocrat. But decisions are increasingly being made by President Xi Jinping and his leading groups “rather than by bureaucrats”, said Jonathan Fenby, a founding partner of Trusted Sources, a London-based consultancy, and author of several books on Chinese history and politics.

READ MORE: China’s central bank governor, Zhou Xiaochuan, led financial reform

The People's Bank of China in Beijing. By staying silent, bank governor Zhou Xiaochuan gives nothing to the market to misinterpret. Photo: Reuters

That leaves Zhou “in an awkward position” as Xi’s broad reform campaign gains momentum. The overhaul is more about strengthening the state than liberalising the power structure, and the current direction would put a person who supports a shift towards the free market at odds with the prevailing currents.

“The party ... [is] now making broad economic policy, with the government’s role being to execute the instructions of the supreme political body,” Fenby wrote in a recent research note.

“As policymaking becomes more centralised, there is less internal discussion and consensus-building,” Kennedy said. “One has to wonder if there is a clear authoritative position on the renminbi and the exchange rate system, because it has yet to be shared publicly beyond generalities.

There is no perfect strategy for central bank communication, and Zhou could have tactical reasons for staying out of China’s war of words with Soros.

“As the market is full of speculative forces, whatever Zhou says could be misused, and why should Zhou feed information to speculators?” said Sun Lijian, a professor of international finance at Shanghai’s Fudan University

In another sense, the PBOC’s “low level of communication”, was not necessarily worse than the “forward-guidance” approach adopted by the Fed, said Stephen Li Jen, a managing partner at SLJ Macro Partners, an investment firm based in London.

The Fed’s strategy aims to influence market expectations about future interest rates by offering comments and making forecasts.

“Think about forward guidance: the Fed officials don’t even know what they are going to do, so why are they talking about forward-guiding the market?” said Jen, a former IMF economist, who also served as its global head of currency research.

If the [policymakers] ... are confused, they should keep their mouths shut
Stephen Li Jen, SLJ Macro Partners

“If the policymaker knows something, if they have genuine signals, then they should communicate them to the market; if they themselves are confused, they should keep their mouths shut.”

While China is officially promising to let the yuan float more and follow a basket of currencies, the central bank has intervened heavily to prevent the renminbi from weakening too much or fall too quickly against the dollar.

“Such operations just add confusion to the market,” said Ding Shuang, chief China economist at Standard Chartered Bank in Hong Kong. “The overall impression is that the central bank is not fully determined about what it wants to do and this, in turn, hurts its credibility.”

The public requests from the IMF and global investors for greater transparency “is deeply embarrassing for a country that wants to be taken seriously on the global economic stage”, Wheatley said. “Zhou Xiaochuan should break his silence without delay.”

Post