China Finds Own Policy Making in Spotlight as G-20 Faces Turmoil

  • Zhou likens policy communications to telegraphing chess moves
  • Lagarde, Lew call for improved communications from government

China’s leadership is ramping up its communication before global policy makers arrive for the Group of 20 meetings in Shanghai next week.

Uncertainty about China’s slowdown has added to bearish sentiment in financial markets this year as the government in Beijing sent mixed signals about managing the currency and stock markets. That’s prompted officials from International Monetary Fund Managing Director Christine Lagarde to U.S. Treasury Secretary Jacob J. Lew to call for better communication.

Just before the first gathering this year of G-20 finance ministers and central bankers in China, set for Feb. 26-27, People’s Bank of China Governor Zhou Xiaochuan broke a months-long silence in an interview with Caixin magazine published Saturday, arguing there’s no basis for continued yuan depreciation. Zhou is also scheduled to speak at a forum in Beijing Friday, along with Finance Minister Lou Jiwei.

“Since last summer’s stock market debacle, the market’s confidence in Chinese leaders’ ability to govern their economy has been badly shaken and it has yet to be repaired,” said Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies in Washington. “The longer this situation lasts, the greater potential damage the unpredictability about China’s economic situation could have on global markets.”

Hosting the G-20 was supposed to be a showcase for China’s growing global stature, building on the IMF’s backing of the yuan as a reserve currency last year and the nation starting a new development lender, the $100 billion Asian Infrastructure Investment Bank.

Now, as China prepares to host the premier forum for global economic matters amid the Pudong financial district’s soaring skyscrapers, the nation’s ability to manage its economy threatens to overshadow its accomplishments.

Countering Speculators

Zhou, the longest-serving G-20 central bank chief after 13 years on the job, expanded on his views on monetary policy communication in the Caixin interview, saying the central bank has different strategies for different market participants.

“For institutions that use foreign exchange, such as importers and exporters, it is important for the central bank to guide and stabilize their expectations,” Zhou said. “For speculators, however, the central bank views them as rivals in a game, and it is unimaginable for the central bank to reveal its operational strategies to them. This is like a player who will never reveal his next moves to the opponent in a game of chess.”

Still, one interview isn’t a communications strategy, and with China exerting more pull on global markets than ever before, investors and policy makers want to hear more.

Lew discussed the need for China to communicate its policies and actions to the market in a call earlier this month with Chinese Vice Premier Wang Yang. And Chinese officials who attended this year’s World Economic Forum in Davos, Switzerland, got an earful about how the government’s actions can often leave the rest of the world guessing.

“There is a communication issue,” Lagarde said on a panel, referring to confusion about China’s shift toward a more market-set exchange rate.

“We all want clarity,” added Goldman Sachs Group Inc. President Gary Cohn.

Doing Better

Fang Xinghai, vice chairman of the China Securities Regulatory Commission, responded to them that China should do better, and it’s learning. He acknowledged that the “system isn’t structured in a way that’s able to communicate seamlessly with the market.”

Unlike central bankers in the world’s other major economies, Zhou can advocate for policies, but he lacks the independence of global peers.

To be sure, central bankers in other major economies haven’t mastered the communications challenge either. Then-Federal Reserve Chairman Ben S. Bernanke roiled global stocks and currencies in 2013 with one line of his testimony to lawmakers about when the central bank might slow its bond buying. Bank of Japan Governor Haruhiko Kuroda said negative interest rates weren’t an option. Now they’re policy.

Kuroda told parliament Thursday that major economies should take coordinated action if needed to stabilize global markets, and that doing so would be on the agenda in Shanghai. “Economic and financial conditions in each nation will be a big topic at the G-20 meeting,” he said. “There will be of course a discussion on volatile moves in global financial markets and reasons behind them.”

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