The World’s Banker

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One of the most vocal figures among Chinese officials, the governor of the People’s Bank of China, Zhou Xiaochuan, is in the habit of stunning, if not offending, the Western world

It is March 2009. Zhou is talking about his “prompt, decisive and effective policy measures, demonstrating [PBOC’s] superior system advantage when it comes to making vital policy decisions.”

The message was loud and clear. If only China were given the chance to run the economic affairs of the world, the global financial crisis caused by the 2008 real estate bubble in the US would soon be over.

Barely a month later, in 2 April 2009, Chinese President Hu Jintao took center stage at the G20 summit in London, adding more teeth to Zhou’s words.

Zhou was heard again in 2010, this time pressing Washington to admit that the US has lost its right to dictate the rules of the global economic order.

The case Zhou was making would be bolstered in August that year, when China replaced Japan as the world’s second largest economy. It was only a matter of time, Zhou said, and China would finally take the top spot from America.

Reformer
A member of the 17th Chinese Communist Party’s Central Committee, Zhou is into his second and last five- year term as China’s central bank governor.

Prior to taking the post, he was chairman of the China Securities Regulatory Commission (CSRC) from February 2000 to December 2002. During his tenure, when China was yet to make its presence felt in the global stock market, he devoted much of his attention to highlighting the role of market mechanisms. He also institutionalized strict supervision requirements to eradicate red tape in the mainland.

The reforms Zhou introduced at the CSCR was likely derived from his long years of experience in business. He used to be senior executive at the state- owned Bank of China from 1991 to 1995, after serving as assistant minister in the Ministry of Commerce.

He was also governor of the State Administration of Foreign Exchange, China’s currency and central bank reserves regulator, from 1995 to 1998, following his tenure at China Construction Bank, the country’s second-biggest lender.

Zhou combines his formal training in engineering (he’s a graduate of the Beijing Chemical Engineering Institute, and holds a PhD in engineering from Tsinghua University) with his rich experience in finance and economics gained from running PBOC’s affairs. His fluency in English adds more flavor to his stint as his country’s chief banker.

Medicine Man
Around two years ago, Zhou battled the demand’s of Western policymakers to allow the Chinese renminbi to float and appreciate. He dismissed the demands as unnecessary. For him, they were cheap Western-style magic cures, “pills that solve the problem overnight.”

Instead, he proposed a Chinese- style treatment of “10 herbs put together that solve the problem not overnight, but maybe in one month or two.”

Recalling the message he previously delivered to the International Monetary Fund, he argued that as no single policy would solve his country’s currency issues, “China would like to use more gradual ways to realize a balance between domestic and external demand.”

This is the Chinese way of curing an illness, by using “a variety of ingredients to make up a gradual approach” as against Western medicine, which he says is largely based on “theory and case studies.”

Now, which among the struggling Western economies can answer this line of thinking? Especially if come from the man who sits on US$3.236 trillion in foreign currency reserves.

He may not be the World Bank’s governor (yet?), but considering that huge amount he is sitting on stands alone atop the currency reserves of other countries, Zhou is already, in essence, the world’s banker.

But despite it all, Zhou holds much less power than most of his Western counterparts. For unlike other central banks, PBOC does not enjoy the independence to decide on monetary or foreign exchange policies. It must still submit to China’s State Council, which has the final say on such matters.

Maybe, it is good that one man does not hold that kind of power.

Print ed: 09/12

 

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