Xinxin Li, of the G7 Group, recently wrote in a report that he thinks that, after the 17th Plenum, the PBoC's position in the Cabinet has been weakened.By contrast, he argues, many local party bosses who favor rapid economic growth have been promoted to top positions. As a result he expects the PBoC to have less independence and influence in the Cabinet. I think the PBoC has the clearest understanding of how difficult China’s monetary position is, and so I would hope to see them get more, not less, influence on policy-making.
Among other things Li argues that this reduced presence will force the PBoC to be more data-dependent in their policy recommendations. With a lot of the major Q3 and September data seeming to suggest that the pace of growth is moderating, it has given ammunition to support the view of government agencies that don't like continuous tightening. In other words, the PBoC will need stronger data to make a case within the government for its rate hike.
As I argued in an October 26 entry, I am much less impressed by the supposed improvement in the numbers.Many of the figures released in October were only slightly better than their excessively high previous levels, and so even movement in the right direction, while better than the alternative, is not enough.What is worse, one of the key numbers, growth in industrial production, didn’t slow at all.It actually soared.For me growth in industrial production is one of the most important data points in trying to get grips on China’s monetary conditions because of its impact on the country’s trade surplus.
Even the slight improvement in CPI inflation may not be all that it seems.Keith Bradsher writes in last week’s New York Times that “China has also controlled the overall rise in consumer prices partly by freezing on September 19 all government-set prices, notably for gasoline, water, electricity and natural gas, until at least the end of this year. The government's National Development and Reform Commission also banned any increases in the maximum allowed prices for medicines, air and rail trips and certain agricultural commodities like wheat, rice and cotton.”
<i>Xinxin Li, of the G7 Group, recently wrote in a report that he thinks that, after the 17th Plenum, the PBoC's position in the Cabinet has been weakened. By contrast, he argues, many local party bosses who favor rapid economic growth have been promoted to top positions. As a result he expects the PBoC to have less independence and influence in the Cabinet. I think the PBoC has the clearest understanding of how difficult China’s monetary position is, and so I would hope to see them get more, not less, influence on policy-making</i>
Thanks for the useful input. Putting the brakes is already difficult in midsized country. In China it may borders to impossible.
Thank you for the point
By francis - 10/29/2007 5:16 PM
New positions, new ideas. It is the central government who concerns the cost of inflation.For the local level leaders, they care most for GDP, which to a large extent dedide their future political promotion.
By smallfish - 10/29/2007 9:02 PM
I'm rather dubious about the conclusions of that report. The Politburo and the State Council have always been dominated by people who have risen through the ranks of local and provincial leaders rather than through the Central Banks, and this is for roughly the same reasons that state governors in the US become Presidents and Fed Chairmen and Treasury Secretaries do not. Basically being a governor whether in China or the United States gives you the general political skills and attracts the people with political personalities in a way that people in finance and central banks do not.
Looking at the people who left and the people stayed in the Politburo, it's really hard for me to see how the PBC would end up with less influence. One could argue that with Bo Xilai on the Politburo and with the new generation made up with people with economics and law degrees rather than engineers, that they would be more amenable to economic arguments.
Also about GDP growth, the criteria for promotion are decided by the Central Government, so local leaders care about GDP growth to the extent that this is the priority of the Central Government and the Organization Department of the CCP.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (3) for "PBoC influence on decision-m...
- 10/31/2007 10:43 AM
October, 2007