Last Friday, Zhou Xiaochuan held what will likely be his last media briefing as the head of the People’s Bank of China (PBOC). After a decade and a half spent at the helm of China’s monetary authority, he is expected to retire following the conclusion of the National People’s Congress (NPC).

Walking the wavy line between tightening and liberalization

The central bank chief, a longstanding advocate for financial liberalization, emphasized that China could “be bolder” in opening up the financial sector to foreign competition. However, he also defended steps taken by the government to tighten control over financial markets and the wider economy, noting that, “The path of reform and opening up is never a straight line. Sometimes small adjustments are needed.” Whether the long line towards opening up will follow a straighter path in the coming years – or continue to see its momentum weave back and forth between the dueling official imperatives of easing and tightening market access – remains to be seen.

Where to with China’s financial regulatory rethink?

This year’s government work report identified staving off systemic risks as one of the “three critical battles” that China must wage and win in the next few years, with the priority on defusing the country’s financial vulnerabilities. In support of such efforts, the leadership is widely expected to continue the overhaul of China’s financial regulatory structure, and Zhou reiterated the urgency of improving supervision to control risks.

However, contrary to widespread speculation ahead of the NPC that China is planning a merger of its financial regulators into a new “super-regulator,” he commented that, “We won’t necessarily adopt,” that approach. He did note though that the central bank would play “a more important role” in financial risk control, without offering any details. In addition, he also stressed that China’s financial conglomerates posed a threat to financial stability due to their risk-taking activities and said Beijing was currently devising “some basic rules” to deal with the issue and require more transparency from them, further indicating that intensified oversight of financial groups is not going to dissipate this year.

Passing the PBOC baton

Speculation has also been rife about who will replace the veteran central bank governor following his retirement since his successor will likely wield considerable influence over China’s future monetary policy and continued financial liberalization. Those who are believed to be among the frontrunners include Liu He, the president’s chief economic advisor, Guo Shuqing, the head of the banking regulator, and Jiang Chaoliang, an experienced banker and the current Party secretary of Hubei province. However, the business community will need to wait until March 19th – when NPC delegates will cast their votes – for the final reveal about who will step up to the plate as the PBOC’s new steward.

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