China will probably retain Zhou Xiaochuan next month as central bank governor, even after he reached retirement age and left the ruling Communist Party’s Central Committee, Reuters reported yesterday.
Zhou, who turned 65 last month, will probably become a vice chairman of the legislature’s top advisory body, giving him a rank exempting him from mandatory retirement, Reuters said, citing two people with ties to the party leadership and two people in the financial industry who weren’t identified. China is keeping Zhou on for an indefinite period to help enact policy changes including loosening control over the yuan, Reuters said.
The Communist Party’s omission of Zhou from its new 205-member Central Committee in November and a Feb. 2 profile by the official China Securities Journal that said he’d step down in March had signaled he’d be leaving as part of a once-a-decade leadership change. Zhou, China’s longest serving PBOC chief, led the bank during the global financial crisis and oversaw exchange-rate reforms in July 2005 that paved the way for the yuan to rise about 25 percent against the U.S. dollar.
“Continuity is good in this case,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said in a telephone interview. Zhou will “continue to push for much-needed reforms” in the financial system and the internationalization of the currency, he said.
Changes that took place during Zhou’s tenure included a loosening of controls over the use of the yuan for international trade and investment purposes, and giving banks more freedom to set lending and deposit rates.
The PBOC didn’t immediately respond to a faxed request from Bloomberg News yesterday for comment on the Reuters report.
Next month’s meeting of China’s legislature will see leaders complete a transition that began with Xi Jinping replacing Hu Jintao as head of the Communist Party in November. That puts Xi in line to also take over from Hu as president at the March meetings. Li Keqiang, who was named the party’s second-highest official, is set to replace Wen Jiabao as premier.
Zhou, at a Nov. 11 press briefing held in Beijing as part of the party congress that appointed Xi general secretary, said “when it comes to retirement, you have to retire when you reach an old age.” An October report by the Chinese Business News about the publication of a book by Zhou had also fueled speculation that he would be leaving the central bank.
Xiao Gang, chairman of Bank of China Ltd., will be appointed party secretary of the People’s Bank of China, setting him up to succeed Zhou eventually, Reuters reported.
Zhou in December spoke of limits on reform, saying China will keep controls on short-term capital flows even if it implements deeper convertibility of the yuan.
The PBOC governor must work within the confines of a system that doesn’t afford the central bank the political independence of counterparts such as the U.S. Federal Reserve.
Retaining Zhou “will provide policy continuity, consistency, and confidence to China’s financial system,” said Liu Li-Gang, head of Greater China economics for Australia & New Zealand Banking Group Ltd. in Hong Kong. “It is hopeful that he can be instrumental in upgrading China’s financial system to the next level.