Central Bank Governor of the Year for Asia 2013
Zhou Xiaochuan, China
The worlds second-largest economy has enjoyed robust rates of growth, fast rising incomes and an increasingly wide role on the international scene for years. Many analysts say that governor Zhou Xiaochuan has made an important contribution to his countrys development, despite the fact that the PBOC is not an independent central bank decisions on monetary policy are ultimately taken by the State Council, the highest executive power in China.
At the beginning of his tenure in 2002, Governor Zhou cleaned up the bad loans from the banking system successfully, says Ashley Davies, Asia senior economist and foreign exchange strategist at Commerzbank. Subsequently he has been successful in keeping inflation low within the context of high growth. Finally, he has been instrumental in pushing the country to internationalize the renminbi, open up the capital account and complete the process of making Chinas monetary policy architecture more consistent with a major industrialized country. The fact that his term was extended earlier this year shows the political leadership has confidence in his abilities to carry consensus in implementing difficult reforms, Davies tells Emerging Markets.
Allan von Mehren, chief analyst at Danske Bank, says that China, despite its economic slowdown, is managing well. Governor Zhou is doing a decent job, but he has to improve his communication strategy, says von Mehren, adding: Its difficult to get to the source of many news; you have to read it second-hand in the media. As the PBOC is moving towards a longer-term perspective and dont fine-tune the economy so much for the short term, it is important that communication improves because it is taking the markets time to realize what their short-term strategy is, he says.
Wei Yao, China analyst with Societe Generale, agrees that the Peoples Bank of China could do more to improve transparency. In June, when interest rates on the Chinese interbank market spiked, a lot of the volatility that followed was due to poor communication, analysts believe. They should communicate better in terms of what their plans are, what their priorities are. It would benefit the market if they guide expectations better, if they provide more visibility in terms of a roadmap for reforms, says Yao. Antonia Oprita
Despite global monetary stimulus on a massive scale, inflation has not yet been a threat for any major economy in the world. But China, which has had problems with price rises in the past, continues to see it as a very important issue and takes every step to ensure it does not flare up. During the past year, the Peoples Bank of China continued to strengthen inflation management and lowered inflation to a relatively low level of 2.6%, central bank governor Zhou Xiaochuan tells Emerging Markets.
With the Chinese leadership in transition, close attention was paid to the slowing economic growth and to employment issues, Zhou says. Chinese inflation was above 6% in the summer of 2011 and fell to around 4.5% at the beginning of 2012. Against this background, the Peoples Bank of China strengthened the management of inflation, continued the strategy of exiting from the economic stimulus plan since 2010, and maintained a prudent monetary policy, which not only effectively lowered inflation, but didnt generate adverse effect on the economy and employment, he says.
The global financial crisis and the eurozone debt crisis that followed dampened market confidence and changed the direction of capital flows, Zhou notes. At home, China also had to face slowing economic growth, a slower increase in exports and difficulties faced by small and medium-sized enterprises when it came to getting loans. All this has led to growing calls for greater supply of liquidity by the central bank. Facing complicated and changing economic and financial situations both at home and abroad and weighing the international situation and domestic demand, the Peoples Bank of China flexibly used a mix of monetary policy instruments, promoted a steady and modest growth of money and credit, and created stable financial and monetary conditions for the stable growth of Chinas economy, while effectively managing inflation, striking a right balance between economic growth and inflation, Zhou says.
The much talked-about end of the commodities super-cycle with many analysts predicting corrections in the prices of many commodities would benefit China in general, through lower import prices of raw materials, reduced domestic inflationary pressures and higher growth, Zhou says. However, the decline could also, to a limited extent, slow down the narrowing of Chinas current account surplus, he adds. While commodity price decline can also help advanced economies to recover, it will negatively impact some developing and emerging market economies, which rely on commodity exports. Given that emerging economies have become an important contributor to the world economic growth, any economic fluctuations in these economies induced by commodity price decline could have global effects. A.O.