Thu, Nov 30, 2017 - Page 9 News List

The biggest tests facing China’s next central bank governor

With Zhou Xiaochuan likely to retire from the People’s Bank of China, taming debt levels is just one of the pressing issues the new chief will have to deal with

By Yinan Zhao  /  Bloomberg

Managing China’s massive capital inflows and outflows, and their effect on the yuan, complicates PBOC efforts to regulate the amount and price of liquidity in the market. It is a task it might ultimately be glad to be rid of, but for now heading toward a freer-floating yuan is something that the next governor is likely to continue.

Moving in that direction might aid another big goal for Beijing: boosting global use of the yuan. Despite the IMF conferring a reserve currency status last year, the yuan’s share of global payments is down from a 2.79 percent peak in August 2015.

With hefty financial sector and currency tasks already on its plate, it would be easy for the PBOC to forget about its inflation mandate a little. With a damaging episode of runaway inflation in the 1990s in mind, though, Zhou’s successor should keep a close eye on developments.

Consumer prices adjusted for food and fuel last month held at their fastest since 2011, evidence that surging factory prices are beginning to feed through. The government’s drive to reduce pollution could also spur inflation, making a tightening of policy not unthinkable.

While the PBOC has to take instruction from the Chinese State Council for major policies, the governor can always leverage his knowledge and experience to guide the direction of the policy debate, said Ding Shuang (丁爽), chief economist for greater China and North Asia at Standard Chartered Bank in Hong Kong.

“It is an important ability to make good arguments for its policies to top leaders, which helps the PBOC find a louder voice among policymakers, even though it might not enjoy full independence,” he said.

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