Imagining China without its top reformer
If ever there were an excuse for China to rethink retirement-age limits, it’s Zhou Xiaochuan.
Sinologists are obsessing over when the soon-to-be-70-year-old central banker will retreat from public life. Questions abound about China’s trajectory without its most forceful and respected reformer holding the monetary reins and prodding the Communist Party to raise China’s game. And investors are rightfully worried.
The last time the world economy saw this level of policymaker drama was around Alan Greenspan’s exit in 2006. While Wall Street’s crash in 2008 has since marred his legacy, Greenspan’s departure from the Federal Reserve panicked investors. During his 18 years as Fed chairman, his cult of personality had presidents and lawmakers deferring to his every whim. Zhou, too, has developed a maestro-like glow in his 15 years as People’s Bank of China (PBOC) governor. Name any major upgrade since 2002, and odds are it bears Zhou’s fingerprints.
Zhou, after all, has been Beijing’s economic face across three different presidencies and three Fed chairmanships. The longest-serving monetary leader among the top 20 economies amassed some serious street cred in the rarefied circles of Chinese decision making.
Zhou ended the dollar peg, modernized monetary-policy tools, scrapped caps on deposit rates and engineered the yuan’s elevation towards reserve-currency status. He steered Asia’s biggest economy through myriad crises—2008’s Lehman Brothers shock, the 2013 taper tantrum and Shanghai’s 2015 stock crash. Most importantly, Zhou artfully balanced keeping China’s duelling asset bubbles from bursting by modernizing its foundations.
It’s a skill he learned from mentor Zhu Rongji. The reforms the long-retired Zhu, who served as premier from 1998 to 2003, pulled off make President Xi Jinping’s efforts today look feeble. The one-time Shanghai mayor shook up state-owned enterprises, including China’s four biggest banks, with an audacity we haven’t seen since. That meant eliminating 40 million jobs and imposing greater accountability. A cagy negotiator, Zhu made sure China came out on top as it entered the World Trade Organization (WTO) in 2001—something about which US President Donald Trump has lots to say 16 years later.
WTO membership was a Trojan horse of sorts, a back-door way to shock a change-adverse system into internationalizing. In 2016, Zhou borrowed a page from that playbook when he pressed the International Monetary Fund (IMF) to add the yuan into its top-five currency matrix. Now inside IMF’s special-drawing rights programme, Beijing will lose face if it fails to liberalize the capital account, increase transparency, offer details on gold holdings and curb shadow banking. Credit rating companies might register their disappointment. So might decision makers who run MSCI or other benchmark indexes.
No one, generally, is irreplaceable. Americans learned that after Greenspan’s departure. Indians learned it in 2008 when Y.V. Reddy left the central bank. And Australians learned it when Glenn Stevens stepped down one year ago. But Zhou comes pretty close.
The good news is that Zhou is pulling off another Zhu Rongji move: guiding his disciples into key positions to ensure continuity. Among like-minded reformers promoted since 2015: Li Bo as director general of the central bank’s monetary policy department; Zhang Tao as China’s voice at the IMF; Xuan Changneng to the China Securities Regulatory Commission; Zhang Xin and Lu Lei to senior roles at the State Administration of Foreign Exchange, which manages Beijing’s $3 trillion of currency reserves.
One reason for concern, though, is PBOC’s independence. Granted, the idea of central-bank autonomy became muddy in this era of quantitative easing and political paralysis. But Zhou’s endgame has always been a more conventional church-and-state separation from party meddling. He had the gravitas to move PBOC in that direction. Will his successor?
Names floated around include Guo Shuqing, who’s chairman of the Banking Regulatory Commission and a political heavyweight. Yi Gang, one of Zhou’s deputies, gets mentioned, as does Jiang Chaoliang, party secretary in Hubei province. Experience and connections, though, don’t ensure the next PBOC leader will have a strong vision for China’s future or the gumption to guide it there. Might Xi reward one of his cronies with a plum policy job? The last thing unbalanced, highly indebted China needs is a monetary lapdog blowing new bubbles and enabling older ones.
It’s setback enough that Zhou’s reform push recently took a back seat to stability. Waves of capital leaving the mainland prompted PBOC to tighten foreign-exchange controls, the opposite of what Zhou wants to be doing. Authorities backed off earlier efforts to curb shadow-banking excesses. Beijing also is more concerned about propping up stock values than tightening corporate governance practices.
But Zhou surrendering his central bank ID card will be a risk-on moment for investors. He hasn’t said when exactly, but with his 70th birthday coming up in January, the announcement is imminent. It’s a testament to Zhou’s success and skill that this eventuality has markets so anxious. Those losing sleep sure wish Beijing would raise the retirement age a bit, and fast. 75, anyone?
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
His Twitter handle is @williampesek