Although the People’s Bank of China (PBOC) still has to fully prove its independence, its governor, Zhou Xiaochuan, has proved he is a reformer, and very proudly so. In 2002 he was appointed chairman of the China Securities and Regulatory Commission (CSRC), the country’s stock market watchdog, which is regarded as a progressive institution thanks also to Mr Zhou’s influence.
During his tenure at the CSRC, he intensified the anti-corruption campaign as well as setting up asset management companies that were used to help dispose of bad debts on the books of the big four state-owned banks – a measure that most observers agree was badly needed. Such a measure helped the then technically insolvent banks to become serious players by international standards.
When China first announced in 2001 that it would open its banking markets, analysts believed local institutions would represent little competition to the foreign banks. Now, with last year’s first foreign applications to operate in the Chinese retail banking market, not even world leader Citigroup would go to the battle field with light ammunition.
Mr Zhou became governor of the PBOC in 2002 and has since advocated more aggressive monetary measures – in particular, a much larger appreciation of the local currency than has so far been allowed. The country’s hardliners accused him of being too westernised, while international observers welcomed Mr Zhou’s view. Among others, the IMF believes that the burden of foreign exchange intervention to prevent the yuan from appreciating at a faster pace has handicapped the PBOC’s ability to control liquidity in the financial system.
Monetary policy was not the only thing that kept the PBOC busy last year. Reforms in the banking sector gained momentum in 2006. They spanned from giving the green light to commercial banks to investing in fixed-return products in overseas financial markets, to facilitating a number of commercial banks to buy foreign currency.
