Globalisation of the People’s Bank of China puts pressure on Yi Gang as the world watches his every policy move

William Pesek says hopes that Yi Gang, the new People’s Bank of China governor, can introduce reforms slowly may be unrealistic as China’s economic policies take on greater importance globally

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Ready or not, the PBOC is morphing into the Fed of Asia. Yi Gang must act quickly to ensure China’s most vital institution is ready for prime time. Illustration: Craig Stephens

Published: 11:30am, 23 Mar 2018Updated: 3:58pm, 23 Mar 2018

In one of his last press conferences as governor, Zhou Xiaochuan urged a “gradual” internationalisation of policies at the People’s Bank of China, a go-slow approach allowing space to open markets, reduce capital borders and curb risk.

His replacement may not enjoy that luxury as he confronts a world economy unwilling to wait.

Yi Gang inherits an institution that, ready or not, is being drawn into the fray of globalisation faster than Communist Party bigwigs might like. That’s partly a product of China’s scale – more than double the size of Japan’s economy and more than triple Germany’s. It also flows from President Xi Jinping’s ambitions to entrench China’s great power status.

The immediate PBOC challenges begin at home, of course. Chief among them is capping a debt-to-gross-domestic-product ratio soon to race beyond 300 per cent. That requires curtailing excesses among shadow banking shops, state-owned enterprises and local governments without derailing top-line growth. But Yi’s biggest headache may be dealing with the increased fallout his policy moves have in world markets.

The globalisation of PBOC policies is really a product of Zhou’s success. As economic stories go, his nearly 16 years at the helm make for quite a volume. When Zhou took the reins in 2002, China’s central bank was but an obscure bureaucratic outpost. Alan Greenspan was in his heyday as Federal Reserve “maestro”, mainland markets were hermetically sealed and Beijing’s influence was a distant concept.

Zhou bequeaths Yi a US$12 trillion economy (versus US$1.5 trillion in 2002) growing at 6.5 per cent and the world’s largest store of foreign exchange reserves (US$3.1 trillion). On Zhou’s watch, China became the No. 1 trading nation, the biggest oil importer and generator of more than one-third of international growth. What stands out, too, are the PBOC’s deep ties with global peers, thanks largely to Zhou’s leadership – and longevity.

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