Exiting PBOC Adviser Urges More Power for Central Bank: Economy

People's Bank of China Adviser Xia Bin
Xia Bin, adviser to the People's Bank of China. Photographer: Nelson Ching/Bloomberg

Xia Bin, a departing adviser to China’s central bank, urged more autonomy for the monetary authority as the country prepares to free up interest rates and increase the yuan’s role as an international currency.

The People’s Bank of China “should be given more power in the areas of some short-term and specific monetary policy adjustment and operations,” Xia, 60, said in an interview in Hong Kong yesterday, a week after his two-year term ended. There is “large room for improvement in how decisions are made,” he told Bloomberg Television.

The state researcher joins organizations including the World Bank and economists at Deutsche Bank AG and UBS AG who have urged China to increase central bank independence and transparency. While U.S. and European counterparts operate separately from other parts of the government, major moves in China such as interest-rate adjustments are decided by the State Council, or Cabinet.

A World Bank report last month said that “further moves to improve the independence of the central bank and to increase the transparency of monetary policy decision making would be essential to support greater international acceptance” of the yuan as a reserve currency. China also plans to give markets a bigger role in setting interest rates.

Asian stocks fell today after mining company BHP Billiton Ltd. said yesterday that China’s steel output growth has flattened, adding to concerns about a slowdown in the nation. The MSCI Asia Pacific Index fell 0.7 percent as of 5:05 p.m. in Tokyo.

Thailand, Malaysia

Elsewhere in Asia, Thailand’s central bank kept interest rates on hold today. Central bankers in Asia are balancing the inflation risks posed by rising oil costs against the threats to growth from any deeper slowdown in the Chinese economy or worsening of the European sovereign-debt crisis.

In Japan, the cabinet office will today release a monthly assessment of the world’s third-biggest economy. The annual report of Malaysia’s central bank will give forecasts for the nation’s economic growth and inflation this year. Malaysian consumer prices rose 2.4 percent in February from a year earlier, according to the median forecast in a Bloomberg survey ahead of data due today.

In Europe, the U.K. budget will be presented to Parliament and Bank of England minutes will be released, while in the U.S. data may show existing home sales in February were the highest in almost two years.

No ‘Hard Landing’

China won’t see a steep slowdown in its economy in part because many local governments are still targeting annual growth above 10 percent, compared with a national goal of 7. 5 percent, Xia said in yesterday’s interview at a Credit Suisse Group AG investment conference. “Judging from the nationwide circumstances, I think a hard landing is impossible,” he said.

Xia’s organization, the State Council’s Development Research Center, was co-author of the World Bank report, which recommended changes to how China manages its economy. In 2010, the Organisation for Economic Co-operation and Development said the central bank could be given “operational independence,” with the State Council setting strategic objectives while leaving implementation to the PBOC.

Such arrangements would let the People’s Bank of China “react promptly and decisively to changing economic circumstances without being swayed by political concerns” and also help give it the credibility needed to influence inflation expectations, the OECD said.

Easing Forecast

Economists including Zhang Zhiwei of Nomura Holdings Inc. forecast China will ease monetary policy to shore up growth after exports and domestic demand slowed in the first two months of the year. A cut in required reserves for banks would be the third reduction since November, while China hasn’t lowered interest rates since 2008.

The State Council should listen to opinions from more people, including those from financial markets, when making major monetary-policy decisions, Xia said. The expansion of the policy committee two years ago to include three non-official members, up from one, shows decision-makers want the views of private academics, he said.

Wang Tao, a Hong Kong-based economist at UBS, who previously worked at the International Monetary Fund, said in a 2010 interview that the State Council should boost the central bank’s independence and the monetary authority should communicate better with the public about how it uses different policy tools.

Decisions by Consensus

China’s monetary policy is “consensus-based” and reflects input from state-owned enterprises, local governments and stock market participants in addition to the central bank, Ma Jun, Deutsche Bank’s chief Greater China economist, said in 2011 in Hong Kong. Ma said in a 2010 commentary in the China Daily newspaper that the nation should give its central bank greater independence in drafting monetary policy.

The State Council said last week that academics Qian Yingyi, Chen Yulu and Song Guoqing replaced Xia and two other advisers, who completed two-year terms.

China’s leaders may allow the central bank to make more decisions on its own yet are unlikely to grant full independence for the “foreseeable future,” Zhao Qingming, an analyst at China Construction Bank and former PBOC researcher, said in a 2010 interview.

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