The People’s Bank of China, the country’s central bank, has denied that its top official will be leaving, after the Wall Street Journal reported Wednesday that the Chinese government is considering replacing PBoC Governor Zhou Xiaochuan due to differences in the direction of monetary policy. But according to experts on China’s economy, even if Zhou is replaced, any successor would have little room to challenge economic policy.
“It’s hard to envision the PBoC implementing any policy that isn’t aligned with senior leadership,” said Nicholas Consonery, Asia director of the Eurasia Group, a political risk consultancy.
Since his appointment to the PBoC governorship in December 2002 -- he is now the longest-serving central bank head among the world's 10 biggest economies -- Zhou has overseen an economy that has grown by at least 7 percent each year and is now second only to the United States in size. And in the years since 2008, when the global financial crisis led China to implement a $586 billion stimulus package, the government has entrusted Zhou with managing the economy’s gradual slowdown: The International Monetary Fund has projected that China will grow by 7.4 percent in 2014, its slowest growth in 15 years.
According to the Journal report, Zhou has urged Beijing to let the economy slow even further. Since the 2008 stimulus, economists have worried that China has relied too much on investment to fuel economic growth, a pattern viewed as unsustainable. But attempts to rebalance the economy have raised fears of a broader slowdown, an outcome that would be politically risky.
Consonery says that, even if rumors of his removal are untrue, Zhou is likely to be replaced “sometime in the next three years”; at 66, he is past the country’s mandatory retirement age for government officials. The Journal reported that Zhou’s likely successor, Shandong Province Governor Guo Shuqing, would align more closely with the wishes of China’s central government. But according to Nicholas Lardy, an economist at the Peterson Institute of International Economics, the PBoC governor in China’s system lacks the ability to move against the wishes of the central government.
“The central bank in China isn’t independent; if it wanted to change interest rates, it would need to get the approval of the State Council [China’s cabinet], and the same can be said about exchange rates. These policies are not set by the central bank,” he said.
Attention has turned to Xi Jinping, the president, Communist Party boss and arguably China’s most powerful leader in three decades. In his first year in office, Xi assumed control of an economic management group, usurping a portfolio normally held by the premier. According to Consonery, Xi’s choice for Zhou’s replacement would signal how the central leadership views the country’s economic health.
“A more visibly reform-minded PBoC head would likely be empowered to make more substantial progress, while a more conservative pick would suggest more caution,” he said.