China’s leaders still banking on ‘irreplaceable’ central bank chief
Zhou Xiaochuan has served under three presidents and dealt with three Fed chairmen
The old generation of economic policymakers in Beijing is ceding centre stage to a new one as the Trump administration in the US threatens to tear up the global trade rule book.
Whether China will move towards an open and ordered market economy, based on the achievements of people such as central bank governor Zhou Xiaochuan, will be largely dependent on the new team’s ideas and capabilities.
The South China Morning Post today introduces a series looking at those who have contributed to China’s current economic situation and those who are likely to shape its future.
Central bank governor Zhou Xiaochuan looks likely to remain in the post for a while as Beijing needs his experience and expertise more than ever to navigate uncharted financial waters, analysts said.
The 69-year-old was appointed head of the People’s Bank of China in late 2002 and policymakers in Beijing are hoping he will be able to steer it through a gathering storm as money flees the country at an alarming rate, debts are piling up to dangerously high levels, and the currency’s value is falling even though Beijing has spent US$1 trillion of its foreign exchange reserves to defend it.
Donald Trump’s victory in last year’s US presidential election and his threat to label China a currency manipulator have made it all the more important for Beijing to have a trusted voice that can be heard in Washington. Few cadres inside China’s decision-making elite can do that better than Zhou, a fluent English speaker who has developed a reputation as a reformer in his 15 years at the helm of the central bank.
“China’s top leaders have realised that a central bank governor is not only a financial official but also an important diplomat,” University of Hong Kong economics professor Chen Zhiwu said. “Zhou is the face of China for the international financial community.”
“He may personally want to retire to spend time doing research, giving lectures, writing books or just enjoying music,” Chen said. “But it’s just hard to find another person [to replace him].”
Liu Shengjun, an economist at the Shanghai-based China Europe International Business School, said Zhou was “irreplaceable” and would remain in office through the Communist Party’s 19th national congress late this year – a key meeting where a fresh leadership line-up will be decided – and would only retire in March next year when his five-year term as one of the Chinese People’s Political Consultative Conference’s vice-chairmen ends. The vice-chairmanship is an honorary position that gives Zhou the status of “state leader”.
When Zhou was appointed central bank governor, few expected him to remain in office for so long. He has served under three Chinese presidents (Jiang Zemin, Hu Jintao and Xi Jinping), had three US counterparts (Alan Greenspan, Ben Bernanke and Janet Yellen), and is the longest-serving central bank chief in the world’s top 20 economies.
Zhou’s long tenure is even more extraordinary given the complications and controversy associated with the role of China’s central bank chief.
The People’s Bank of China, unlike the US Federal Reserve, Bank of Japan or the European Central Bank, is not an independent agency charged with deciding monetary policy but a ministry-ranked cabinet body. As a result, Zhou has to persuade the leadership to accept his major proposals while dealing with conflicting policy goals and striking a balance in deciding which tools to use.
When former premier Wen Jiabao opted for all-out stimulus in late 2008, Zhou loosened monetary policy aggressively and was criticised for lacking independence and irresponsibly printing money. But when Zhou tried to tweak liquidity in the money market in 2013 and caused a surge in interbank rates, he was criticised for “taking away the punch bowl” too hastily and causing a “cash crunch”. In largely ceremonial voting for cabinet ministers at the annual meeting of the National People’s Congress in 2007, Zhou got the third-lowest number of votes.
International media outlets, including Reuters, Bloomberg and The Wall Street Journal, have previously reported that Zhou was on his way out, and even the state-owned China Securities Journal reported wrongly in 2013 that Zhou was about to step down.
Despite the economic constraints and political pressure, Zhou has clocked up many achievements in the past 15 years that have changed the economic and financial landscape in China and globally.
He is credited with revamping China’s state-owned banking industry, loosening interest rate controls, creating the interbank bond market, obtaining nominal reserve currency status for the yuan, and making China’s central bank, at least on the surface, look more like its American and European counterparts than the finance ministry’s cashier.
“It is remarkable that Zhou single-handedly pushed forward interest rate liberalisation and brought an isolated currency to the international family in his tenure,” said Zhao Xijun, deputy dean of the school of finance at Renmin University in Beijing.
Zhou spent his early twenties, during the Cultural Revolution, working on a farm in Heilongjiang, even though his father was a vice-minister of machine-building industry. He studied system automation at university and obtained a doctorate in engineering from Beijing’s prestigious Tsinghua University.
In the 1980s he worked as a researcher with a group of liberal-minded intellectuals, drawing blueprints and plans for China to move from a command economy to a market-based one, and his pro-market views have persisted throughout his career.
International Monetary Fund managing director Christine Lagarde praised Zhou a year ago as “one of the helmsmen of Chinese economy” and “a world-class intellect”, who spoke “the same language” as other global leaders and policymakers.
Zhou is likely to spend whatever time he has left at the helm of the central bank playing defence, as he tries to guard his legacy. Further reforms, such as further promoting the yuan’s global clout or liberalising the capital account have now been put on the back burner.
“Zhou attaches great importance to capital account opening and the internationalisation of the yuan ... he is trying to have his own legacy,” Chen said. “But the No 1 job given to him is to maintain stability ... everything else is secondary.”