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The new governor of the People’s Bank of China, Pan Gongsheng, will lead at a time of uncertainty for the world’s second-largest economy, and the People’s Bank itself.
The bank will struggle to reset China’s post-coronavirus recovery, which is suffering from weak investor confidence that many experts believe cannot be easily improved by monetary policy. . It will also do so by weakening its powers following regulatory reforms and transferring some supervisory functions to other regulators.
Analysts said this despite Technocrat’s appointment this weekend as a powerful Communist Party chairman of the People’s Bank of China (he is also expected to soon be given the additional public role of governor). He said he was welcomed by market participants because of his extensive experience in the field and his contacts and training with Western countries. .
“Pang represents policy continuity and the consensus seems to be that it is the path of least resistance,” said Carlos Casanova, senior Asia economist at Union Bancare Privé.
Mr. Pan is expected to succeed outgoing Governor Yi Gang, who has held the position for more than five years, succeeding Guo Shuqing, the former chairman of the People’s Bank of China and bank supervisor.
Both are acclaimed technocrats who were expected to be ousted in March following Xi Jinping’s unprecedented third five-year term as president, in a clear move to lead financial sector regulation. Retained.
One of Pan’s most pressing challenges is the timing of monetary stimulus to boost China’s slowing economic recovery as indicators ranging from manufacturing activity to exports lose momentum in the second quarter. And the debate over the scale is growing.
Despite modest rate cuts, the Chinese government is reluctant to follow the example of central banks in developed countries by easing monetary policy significantly.
Analysts warned that despite Pang’s international training, his appointment did not signal a radical shift in monetary policy. Pan has publicly defended the central bank’s current stance of “maintaining normal monetary policy” and “no dramatic changes in interest rates.”
Arup Raha, chief Asia-Pacific economist at Oxford Economics, said aggressive monetary stimulus would not necessarily trigger the much-needed recovery in demand. He said the Chinese government’s strategy is to target specific loans and cut interest rates to soften the blow to some creditors until the global economy recovers.
“It’s more of a buffer movement now,” he said. “We’re in a situation where we can cut interest rates as much as we want, but demand is gone and it’s not clear if it will turn the economy around.”
The central bank’s policy limits are not limited to economic issues, experts say. Changes in China’s financial regulatory environment have also stripped the People’s Bank of China some of its former powers, the people said.
Under the March reforms to China’s financial regulatory structure, the government reduced the responsibility of the People’s Bank of China and focused on the central bank’s traditional functions of monetary policy, financial stability and foreign exchange.
Under Guo and Yi, the People’s Bank of China has expanded its mandate to include other forms of credit such as digital payments, cryptocurrencies and real estate loans.
The CCP has always kept tight control over the country’s government institutions. The same officials often occupy senior roles in both party and parallel government bureaucracies.
But Mr. Xi’s efforts to increase direct party oversight over the financial sector and to create a new Central Monetary Commission will further constrain the PBOC’s ability to make decisions.
The CFC, an umbrella body of the Communist Party led by Vice Premier He Lifeng and veteran state banker Wang Jiang, will oversee all financial watchdogs and reduce the influence of institutions such as the People’s Bank of China in policy making.
In the past, he and his direct government boss, former vice premier and economic minister Liu He, made most of the key decisions on monetary policy, according to people familiar with Yigang.
Alicia Garcia-Herero, chief Asia-Pacific economist at Natixis, said, however, that China’s financial and market regulatory landscape is now at a “stalemate” as party leaders tighten control from state institutions. .
“It doesn’t really matter who heads the PBOC,” Mr. Herrero said. “It’s the parties that run the show.
“Whether it’s Gongsheng Ban or someone else, he will do what is expected of him. It shows that you don’t want to suffer.”
People who have met Mr. Pang, who has held research positions at Cambridge and Harvard Universities and was trained at the UK-based Standard Chartered Bank, said Mr. Pang was a “business man” such as managing foreign exchange reserves and exchange rates. ‘, while Mr. Yi was more focused on that, he said. He has experience in macroeconomic issues and monetary policy.
Still, the appointment of a down-to-earth official with extensive experience in financial regulation has helped reassure markets reeling from China’s slow recovery.
“[Pan’s] The experience should help the PBOC embark on its next stimulus and support the yuan [exchange] We cannot rule out further downward pressure on rates in the short term,” said UBP’s Casanova. The yuan has come under pressure against the dollar this year after U.S. interest rate hikes.
Casanova expects further support measures by July, including a reduction in the reserve requirement ratio (the amount of cash banks have to set aside) and a plan to help battered sectors. It includes indirect mechanisms such as balance sheet expansion, which means increased central government funding.
“Pang appears to be a strong believer in the idea of a gradual and targeted opening-up,” said Chen Long, co-founder of Beijing-based consulting firm Plenum.
“No one thinks his appointment heralds a sudden opening of China’s capital markets, but the good news is that the People’s Bank of China is unlikely to retreat under Mr. Ban’s leadership. .”
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