BOFIT Viikkokatsaus / BOFIT Weekly Review 2023/36

The Communist Party of China on July named Pan Gongsheng (60) as central bank party secretary (effective July 1) and governor (effective July 25). Previously Pan served as a PBoC deputy governor. He continues to head the central bank’s State Administration of Foreign Exchange (SAFE), the post he has held since 2016. Yi Gang (65) stepped down from his post as governor and Guo Shuqing (67) has retired from his duties as central bank party secretary.

Pan Gongsheng is considered a consummate technocrat with extensive financial market experience. He took his doctorate at Beijing’s Renmin University and worked as a post-doc researcher at Cambridge University in the UK and visiting researcher in Harvard University in the US. Before joining the PBoC in 2012, Pan worked at two of China’s giant state-owned banks (ABC and ICBC). Like his processor Yi, Pan does not belong to the 205 permanent members of the CPC’s standing committee, and his political influence within the party is considered relatively minor. Some commentators have speculated that Pan’s appointment signals a reduction in the central bank’s role and influence on Chinese economic policy. The new governor is expected to continue similar policy to Yi. The central bank has been an advocate for market-based reforms, but the political appetite for such change has diminished in recent years.

Pan finds himself in charge of a central bank and currency regulator dealing with an unfavourable operating environment. His dual challenge will be to support economic growth and market stability while slowing the growth of indebtedness. Because China’s central bank lacks independence, it ultimately must comply with the party’s economic policy goals. The PBoC possesses a large policy toolbox with instruments that can be used to target at specific sectors or regions. Due to the baroque character of Chinese monetary policy, however, it is difficult to form a clear picture of monetary policy stance. Not only do financial market risks become increasing difficult and costly for the government to deal with, but a managed exchange rate creates headaches for a central bank currently struggling to deal with devaluation pressures – especially when central banks elsewhere have set interest rates well above the Chinese level. As recently as a decade ago, China’s officials aspired to a floating exchange rate. Today no one dares mention floating rates, and the officials want to have both the exchange rate and capital movements in their control. With the current rise of financial market risk and the government’s tightening grip on the economy, implementing market-based reforms has become increasingly difficult.

China has maintained an accommodative monetary policy stance for over a decade

Sources: People’s Bank of China, Macrobond and BOFIT.

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