China’s central bank needs to be more predictable
ZHOU Xiaochuan is governor of the People’s Bank of China (PBOC). But among some financial types, he’s earning another, less enviable title: the killer of weekends. On May 10, Zhou announced a surprise interest rate cut, forcing anyone with a stake in the Chinese economy to put a premature end to what had likely otherwise been a day off. Even worse, the move leaked hours earlier on social media, adding to what Deutsche Bank calls an unnecessary “atmosphere of alarm” in the global economy. It was just the latest example of the PBOC’s penchant for making surprise moves on Friday, Saturday or Sunday evenings – or, in one instance in 2010, on Christmas Day – with zero warning and little explanation.
All this raises a troubling question: Is China’s central bank up for the responsibility of helping steer the world’s second biggest economy? The available evidence suggests the answer is no.
There are two main problems with the PBOC’s erratic behaviour. First, it erodes the effectiveness of Zhou’s policies. On May 11, the first trading day after the PBOC said it was trimming its one-year lending rate by 25 basis points to 5.1 percent, financial markets gyrated.
After scouring for details from an array of media, traders simply had no idea what Zhou was trying to accomplish. Had the PBOC provided deeper insight into where it wanted to guide borrowing costs, and why, financial markets might have worked in tandem.
Confusion
“The resulting confusion and asymmetry in information flows are not in PBOC’s interest,” Angela Beibei Bao, an analyst at New York research firm Rhodium Group, told Bloomberg News.
Second, Beijing’s impetuousness impairs any hope it has of playing a leadership role in the global financial system. No serious observer expects the PBOC to mimic the Federal Reserve or European Central Bank. But, as China’s clout in the international economy rises, it has a responsibility to adopt a decision-making style that avoids spooking markets.
Take China’s push to transform the yuan into one of the world’s five main reserve currencies. Zhou has been lobbying the International Monetary Fund (IMF) to add the yuan to its Special Drawing Rights system along with the dollar, euro, yen and British pound. That goal is sensible given Beijing’s status as the biggest holder of currency reserves ($3.7 trillion). But, given the country’s propensity for springing monetary surprises, the IMF is unlikely to grant recognition to China as a “safe haven” from global risks.
It doesn’t help that China has also earned a reputation for lacking financial transparency. The IMF, Standard & Poor’s and McKinsey have gotten accustomed to working around the questionable debt figures regularly issued by the Chinese government. But hardly anyone feels comfortable estimating the size of China’s shadow-banking industry and gold reserves. (Beijing treats the latter as a state secret.)
Zhou has been making efforts to reform the Chinese system. In 2013, he began publishing data on the bank’s liquidity-management efforts. More recently, the PBOC has issued occasional statements to the public, though they tend to elaborate on the meaning of the bank’s mandate – not what efforts Zhou is organising to meet it.
There are some concrete steps the PBOC could take to further improve its reputation, beginning with the creation of a reliable system for communicating policy changes. Although it’s not officially a Group of Seven power, it should begin scheduling regular rate-decision dates – and Zhou should consider making public statements on policy shifts – like the world’s other major economies.
Independence
It would be better, of course, if the Communist Party gave the PBOC the independence it needs to make difficult policy decisions. Right now, Zhou and his team take instructions from Beijing’s State Council, which has a track record of censoring the media. “As China steadily opens up its economy to the world, external risks are likely to grow,” says Simon Grose-Hodge, Singapore-based investment strategist at LGT. “The PBOC will require a free hand to make the unpopular, but necessary decisions politicians all too often defer.”
Unfortunately, that’s a non-starter in President Xi Jinping’s China. The PBOC’s problems with transparency are an unfortunate offshoot of Beijing’s broader obsession with secrecy.
So for all the talk of China becoming a mature global power, the country seems destined, in the immediate future, to remain a financial black box – one where investors will still be obliged to constantly check their BlackBerrys on the weekends.– Bloomberg
ACROSS the globe women earn less than men do and according to the Less Than 100 popup project in Pittsburgh, US, this is a problem. As a way of creating awareness of this discrepancy they have come up with a way to restore equality not by changing what women earn, but by changing how far their earnings go – at the store women pay less than men do. By engaging in price discrimination based on gender they seek to create equality through buying power.
It’s a powerful and tangible example. In the state of Pennsylvania women, on average, earn 76 percent of what men do. At the Pittsburgh pop-up shop women therefore pay 24 percent less than men.
While the project is a great initiative in terms of creating awareness of the earning differential, attempting to restore equality by changing prices is misleading in terms of what is actually causing the problem. The store makes one economic mistake that changes the dynamics and the integrity of the debate around equality; it confuses wage gap with wage discrimination.
Let’s take the South African workforce as an example. According to 2013 South African Revenue Service data, women on average earn 28 percent less than men. But does this mean that equality would be reached if women paid 28 percent less for goods and services than men do? No.
Wage discrimination
Gender wage discrimination occurs when a man and a woman in the same job holding the same education earn different amounts. The gender wage gap however, takes into account all jobs, skill sets, and personal choices and shows the difference between what the average man and woman earns. In most families women still assume the role as the primary caretaker of children, often sacrificing their potential earnings to do so. This difference is captured in the wage gap.
Price discrimination would be appropriate if it was wage discrimination driving the difference between men and women’s earnings. But it is not. Wage discrimination does occur in South Africa but it is categorically illegal and not as common as the wage gap suggests.
Excluding personal choices of whether to work or not, the problem in South Africa is that men have better access to higher paying jobs than women do. In lower income brackets, men and women on average earn about the same.
But as the income bracket rises the difference between men and women starts to grow. In 2013 only 306 women earned R5 million or more per year. In contrast, 3031 men fell into this category. The wage gap between men and women does not apply to the majority of the workforce and only starts to take effect in the top 5 percent of income earners. This is where mixing wage discrimination and the wage gap can be misleading.
In South Africa, however there is another problem. While earnings may be similar among men and women for most of the workforce, this is not true for the entire population when including those who do not work. In the fourth quarter of 2014, unemployment among women was 26.6 percent while among men it was only 22.4 percent.
South Africa’s laws protect employees from blatant gender discrimination, but society is still structured around a system that offers more opportunities to men than it does to women.