China’s Central Bank is increasingly under Beijing’s mandates and losing its special economic status as its policies become affected by political pressures, a Vision Times analysis published on Dec. 18 concluded.
To support that argument, the analysis brought about the recent example of contradictory mandatory reserve policies of the People’s Bank of China (PBOC) before and after Beijing’s intervention.
Last week, PBOC announced that it would lower the reserve requirements for banks, allowing these institutions to have more cash to lend. The decision was made under pressure by senior leaders anxious about economic downturn and facing tough investigations by Xi Jinping inspectors, which reverses what PBOC had declared not long ago.
In October, Sun Guofeng, head of the Central Bank’s monetary policy department, rejected the prospect of the PBOC lowering reserve requirements of banks. But the property woes have posed significant pressure to Chinese leadership to ensure real estate companies get loans.
In a Dec. 10 video call with the International Monetary Fund (IMF), Managing Director Kristalina Georgieva and Chinese Premier Li Keqiang promised to cut the reserve requirements. Three days later, the PBOC announced the cut.
The PBOC might be forced to further reduce the rates to protect the economy, regardless of its emphasis on policy discipline. According to economists, interest rates could also be cut next year.
Over the last few weeks, inspectors from China’s top anti-corruption division of the Communist Party have visited the central bank’s headquarters in Beijing, interrogating bank officials and investigating documents. They also delivered a surprisingly tough message: Any expression of central bank independence will not be entertained by Beijing, WSJ reported. The inspectors insisted that similar to other wings of the government, the monetary authority is accountable to the Party.
The PBOC is among 25 critical financial institutions under investigation by Beijing inspectors. The review aims at verifying whether these financial institutions had become too friendly with private firms and whether regulators like the PBOC have been too inattentive about avoiding the risks caused by companies like Ant Group or the debt-laden China Evergrande group.
Throughout its history, the PBOC has never been politically independent like central banks of the free world, but it had enjoyed a unique standing in the country’s economic order before Xi Jinping remodeled the economy. Xi focused on steering communist China away from Western-style capitalism, destroying the special status PBOC has enjoyed, Vision Times explained.
“The PBOC has carved out a modest amount of operational autonomy to push forward financial liberalization and a more market-oriented monetary policy framework…That notion of operational autonomy is now coming into conflict with a more intrusive role of the government in the economy…The PBOC is losing,” Eswar Prasad, economics professor at Cornell University and former China head of the IMF, concluded.