China’s next step on yuan is con­vert­ibil­ity: Zhou

China’s cen­tral bank chief urges na­tion’s new lead­er­ship to deepen changes in econ­omy to sus­tain growth

The Pak Banker - - Front Page -

BEI­JING

China’s cen­tral bank gover­nor said con­vert­ibil­ity will be the next step in the over­haul of the ex­change-rate sys­tem as calls grow for the na­tion’s new lead­er­ship to deepen changes in the econ­omy to sus­tain growth.

“For the cen­tral bank, I think the next move­ment re­lated to the yuan is go­ing to be re­form of con­vert­ibil­ity,” Zhou Xiaochuan said at a con­fer­ence on Mon­day. “We are go­ing to re­al­ize it, we are mov­ing in this di­rec­tion, we need to go fur­ther, we will have some dereg­u­la­tion.” China’s cen­tral bank gover­nor said con­vert­ibil­ity will be the next step in the over­haul of the ex­change-rate sys­tem as calls grow for the na­tion’s new lead­er­ship to deepen changes in the econ­omy to sus­tain growth. China’s cen­tral bank gover­nor Zhou Xiaochuan, who has headed China’s cen­tral bank for the past decade, wasn’t reap­pointed to the cen­tral com­mit­tee, sug­gest­ing he will prob­a­bly leave his job.

Zhou’s com­ments un­der­score pledges by the rul­ing Com­mu­nist Party, which last week com­pleted the most im­por­tant phase of a once-adecade power tran­si­tion, to pro­mote freer move­ment of cap­i­tal in and out of the coun­try for in­vest­ment pur­poses and to make the ex­change rate more mar­ket-based. The re­forms may be part of a broader sweep of changes the na­tion’s new lead­er­ship, headed by Xi Jin­ping, will be pres­sured to roll out in the world’s sec­ond-big­gest econ­omy.

“Ex­pec­ta­tions are high” for change as gov­ern­ment in­ter­ven­tion, rang­ing from ex­ces­sive reg­u­la­tion to rigid price con­trols, has be­come “un­bear­able” over the last cou­ple of years, said Li Jiange, head of the coun­try’s big­gest in­vest­ment bank and a vice chair­man at the gov­ern­ment-run com­pany that holds stakes in sta­te­owned lenders.

Li, who spoke at a sep­a­rate con­fer­ence in Bei­jing on Nov. 17, is chair­man of China In­ter­na­tional Cap­i­tal Corp., and a vice chair­man of Cen­tral Hui­jin In­vest­ment Co., a unit of the na­tion’s sov­er­eign wealth fund.

He added his voice to calls this month by bil­lion­aire en­tre­pre­neur Liang Wen­gen, econ­o­mist Justin Lin Yifu and lib­er­als in­clud­ing the son of late party chief Hu Yaobang for the gov­ern­ment to al­low a big­ger role for mar­ket forces.

Liang, head of Sany Heavy In­dus­try Co., the na­tion’s big­gest ma­chin­ery maker, said pri­vate en­trepreneurs “hope the new gen­er­a­tion of lead­ers will continue to re­form and open the mar­ket.” He spoke on Nov. 11 as a del­e­gate to the congress that se­lected the party’s new rul­ing body last week.

CICC’s Li said op­po­nents of mar­ket-ori­ented changes gained a louder voice dur­ing the global fi­nan­cial cri­sis when the gov­ern­ment’s in­ter­ven­tion in the econ­omy in­creased and in­ten­si­fied.

“We need to re­view what the Chi­nese Com­mu­nist Party de­cided 20 years ago: that is, to let mar­ket forces play a fun­da­men­tal role in al­lo­cat­ing re­sources,” he said.

The new lead­er­ship will prob­a­bly un­veil mar­ket- ori­ented changes in late 2013 af­ter a ple­nary ses­sion of the party’s cen­tral com­mit­tee, Li said. Re­forms will fo­cus on re­duc­ing gov­ern­ment in­ter­ven­tion in the econ­omy and break­ing up state mo­nop­o­lies, he said.

The PBOC is of­ten pres­sured by in­ter­est groups to re­lax mone­tary pol­icy and to sup­port growth, Zhou said in a sep­a­rate talk on Nov. 17.

Zhou, who has headed China’s cen­tral bank for the past decade, wasn’t reap­pointed to the cen­tral com­mit­tee on Nov. 14, sug­gest­ing he will prob­a­bly leave his job. At a press briefing dur­ing the congress, Zhou didn’t di­rectly an­swer a ques­tion on his re­tire­ment.

Dur­ing his ten­ure, the coun­try started to over­haul its ex­change-rate sys­tem and fi­nan­cial mar­kets. Changes in­cluded revalu­ing the yuan and end­ing its peg to the U.S. dol­lar in 2005, al­low­ing the cur­rency to be­come con­vert­ible for trade pur­poses, giv­ing banks more free­dom to set in­ter­est rates and al­low­ing some for­eign in­sti­tu­tional in­vestors ac­cess to the coun­try’s stock and bond mar­kets. The yuan has ap­pre­ci­ated about 33 per­cent against the dol­lar since the reval­u­a­tion. The cur­rency had its big­gest weekly gain in a month in the five days through Nov. 16. It was lit­tle changed to­day at 6.2345 per dol­lar at 11:38 a.m. in Shang­hai.

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