The ordinary meetings of the members of the People’s Bank of China (PBOC) are every three months. They discuss the monetary policy priorities of the Asian giant and always end with the same commitment, to maintain a “prudent” approach. The movements of the last two months, however, are far from announced. Between the massive injection of liquidity to curb the stock market crash in June and July and the latest surprise devaluation of the yuan, the Chinese Central Bank has made its biggest intervention in the Chinese economy since the outbreak of the international financial crisis.
The reduction of the value of the Chinese currency against the dollar has occurred – as the institution has insisted in favor of a greater role of the market in the Chinese economy. However, the enormous amount of resources spent for the rescue of the stock exchanges does not coincide with this premise.
“Everything is a big contradiction, there seems to be a desire for openness, but then the government reaction comes in. When the stock markets fell, the stock market ceased to be a market after the intervention, now we are seeing the same thing: an attempt of liberalization counteracted by political interference “, says Ole André Kjennerud, an analyst at the Norwegian bank DNB.
The Economist refers to the strange movement of last Wednesday, when in the process of devaluation of the yuan an intervention of the issuing Bank – which was never recognized officially – managed to stabilize the value of the currency, as if the regulator had underestimated the reaction of the markets. “It seems that someone was surprised to see the yuan’s fall and decided to act, all this makes you think how much control the government exercises in an environment where the market should already be playing a decisive role,” he says.
Although this is presented in its statutes, the People’s Bank of China is not a fully independent body. The institution acts “under the guidance of the Council of State”, that is, of the Government. In fact, its governor, Zhou Xiaochuan, has a permanent seat in the meetings of the Chinese executive body, as if it were a minister more.
The decisions that affect the interest rates, the value of the currency or liquidity injections need the approval of the Executive. Alicia García Herrero, chief economist of the Asia-Pacific region of Natixis, believes that the latest movements have not questioned the credibility of the agency, but that it is being overused: “the PBOC has become the Deus ex machine of the Chinese economy.
Not only does it control inflation and regulate the economic cycle, but it is the main manager of the stock market crisis and, more recently, the guarantor of the reform process towards convertibility of the currency “.
The analysts, however, highlight the professionalism of the members of the organization. The same Zhou, 67, has emerged as a figure of consensus within the Chinese Communist Party with a profile of technocrat. He speaks fluent English and is a strong supporter of the country’s economic liberalization.
He is, in fact, the governor of the Chinese central bank that has been in office the longest (13 years) since the establishment of the People’s Republic of China. Practically all the vice-governors, younger, have higher education in prestigious American, English or Canadian universities. But all of them lack power before the most political positions. “As in many other areas, very valid and intelligent professionals work in the PBOC,
“The main problem is the lack of transparency, if the PBOC wants a better market, they should communicate more clearly and let the market forces play their role.” Stock or commodity prices did not fall because of the fall in prices. value of the yuan, but because of the uncertainty about how things really are in China, “says Kjennerud.