China Extends Zhou’s Record 10-Year Tenure as Central Bank Chief
The reappointment of Zhou, 65, was made at the National People’s Congress yesterday in Beijing as it approved a new economic team for Premier Li Keqiang, who replaced Wen Jiabao on March 15. The announcements didn’t disclose whether Zhou will remain the People’s Bank of China Communist Party secretary or if another official will take the post.
Adding to Zhou’s decade in the role provides stability as China grapples with rising shadow-banking risks and changes how it conducts monetary policy. The governor, whose omission from the party’s new Central Committee in November fueled speculation he would retire, will be charged with loosening interest-rate controls and expanding international use of the yuan.
“Zhou has proved to be a capable central banker who is recognized both within China and globally,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “Zhou’s rich experiences will be valuable for new leaders who may not be so familiar with conducting monetary policy.”
Zhou’s reappointment was approved by a vote of 2,753 to 158, with 41 abstentions, the third-most negative ballots yesterday behind the housing and environment ministers. It comes after Xi Jinping’s ascent to the presidency, succeeding Hu Jintao, and Li’s selection as premier, completing a transfer of power that started in November when Xi was named head of the party and Li its No. 2.
The negative votes may reflect sentiment that “in the past five years a lot of money has been printed, and inflation is too high and home prices are too high,” Lu said. “Some of these criticisms are not fair.”
China is retaining its best-known finance official internationally while central banks in Japan, the U.K. and Canada are getting new chiefs this year. Even so, the PBOC governor works within the confines of a system where China’s State Council, or cabinet, decides on policies including interest rates, leaving the central bank without the autonomy of counterparts in the U.S. and Europe.
The Communist Party’s omission of Zhou as a member of its 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 suggested that the governor, who took office in 2002, would leave as part of China’s once-a-decade leadership change.
Minister-level officials such as Zhou also usually hold the post of the agency’s party secretary. Reuters and the Wall Street Journal reported last month that Bank of China Ltd. Chairman Xiao Gang would take that position at the PBOC while Zhou remained governor. Reuters and the Wall Street Journal later said Xiao may become securities regulator instead.
Zhou was named March 11 as one of 23 vice chairmen of the nation’s top government advisory body, the Chinese People’s Political Consultative Conference. The position allows him to serve beyond retirement age, a person with direct knowledge of the leadership discussions told Bloomberg News last month.
The governor led the central bank during the global financial crisis and oversaw exchange-rate reforms in July 2005 that paved the way for the yuan to rise more than 30 percent against the U.S. dollar. He also expanded the bond market, gave banks more freedom to set lending and deposit rates and loosened controls over the yuan’s use for international trade and investment purposes.
A Bloomberg News survey conducted from Feb. 28 to March 5 found that 12 of 16 analysts expect China this year to relax or remove the cap on deposit rates or the floor on lending rates. Five said the PBOC is likely to use a market-based interest rate, such as a repurchase rate, as a new benchmark.
“The major reason they kept him on is to reassure the western world that reform of the currency regime and other financial reforms will be maintained,” said Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong.
The governor must also confront an expansion in credit outside the banking system that includes less-regulated products such as trust loans. Aggregate financing, an indicator started by the PBOC in 2011 to provide a broader gauge of funding in the economy, more than doubled to a record 2.54 trillion yuan ($408 billion) in January from a year earlier.
Zhou’s most recent comments signal a heightened focus on controlling prices. He said at a press briefing March 13 that China should be on “high alert” over inflation after February’s figure exceeded forecasts. Monetary policy is “no longer relaxed” and is “relatively neutral” as demonstrated by a 13 percent target for money-supply growth that’s tighter than expansion in the last two years, Zhou said.
February inflation, distorted by the weeklong Lunar New Year holiday, accelerated to a 10-month-high of 3.2 percent. New lending in February and retail sales and industrial production in the first two months of 2013 all missed analyst estimates, fanning concerns that a rebound in the world’s second-largest economy may be moderating.
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