So as you’ve probably heard, The People’s Republic Of Xi appointed their first new central bank governor in 15 years overnight in Yi Gang.
This is generally seen as a nod to policy continuity, although whether that’s a “good” thing kinda depends on whether you’re a fan of current “policies” or not and also whether you think you’ve got a good read on what those “policies” actually are.
Sorry, but I mean all of these NPC decisions are to a certain extent laughable and considering that PBoC policy is prone to taking abrupt turns for the draconian virtually overnight depending on whether China thinks market participants are exhibiting “unreal, herding actions“, using the term “continuity” is something of a misnomer.
Additionally, this is always just an exercise in keeping the spinning plates aloft. It’s a constant effort to manage competing agendas whether that’s squeezing leverage out of the labyrinthine shadow banking complex while ensuring there’s no collateral damage in the real economy, moving towards a more liberal FX regime while ensuring that shift doesn’t end up destabilizing shit, and on, and on.
But cynicism aside, Bloomberg Economics’s Tom Orlik notes the following:
Yi is the architect and executor of the PBOC’s current policies, and his appointment represents continuity. As a veteran of 20 years at the central bank, Yi certainly doesn’t lack depth on monetary policy. He’s also an inheritor of Zhou Xiaochuan’s legacy on pushing pro-market reforms — from the liberalization of interest rates to a more-open capital account and market-set exchange rate. Where he lacks depth relative to Zhou and some of the other widely discussed candidates is on broader financial market experience.
That’s all fine and good but really, important decisions are made by one person and that person is definitely not named “Yi” – although it’s close – there’s just a one-letter difference.
The fact that, as Orlik goes on to mention, Yi “occupies a relatively junior position on China’s totem pole,” probably means he’ll be even more beholden to the “thoughts” of noted FX strategist, former pig farmer , and current “King“, Xi Jinping.
For whatever it’s worth, Yi had this to offer when speaking to reporters on Monday:
The main task is that we should implement prudent monetary policy, push forward the reform and opening-up of the financial sector, and maintain the stability of the entire financial sector.
Those interested can read Goldman’s quick take on Yi below.
Via Goldman
In our view, Governor Yi’s appointment could be viewed positively by the markets for several reasons:
- From a short-term cyclical perspective, Yi has been effectively running monetary policy, especially in recent months as governor Zhou is scheduled to retire. This would mean more policy continuity, which should ease concerns about additional tightening from a new governor. The actual policy stance of the PBOC has been highly flexible in recent months, with interbank interest rates and the quantity of RMB loans often surprising on the dovish side. This does not mean governor Yi has a dovish bias, however we believe the governor likely has a relatively mild hawkish bias as is consistent with the direction of the top leadership. But we believe it would also imply that he is flexible if other regulators become too hawkish to maintain broad policy, market and economic stability.
- He is a pro-market reformer like his predecessor. As the former head of SAFE, he abolished a large number of rules and regulations which was highly controversial. It is customary to release rules and regulations when they started to be used but they are rarely formally abolished when they are no longer used. All else equal, this can potentially imply incrementally greater use of market interest rate as a tool instead of the administrative tools which have been heavily used in the past. This does not mean rate will necessarily rise since there are large number of factors influencing the rate decision and we still see significant probability of lower rate should other regulators continue to be aggressive in policy implementation.
- From a systematic stability perspective he has large amount of experience about policy implementation which may mean lower operational risks, especially as he went through the 2015-16 FX correction first hand.
Having said that, there are some uncertainties regarding governor Yi’s authority as it remains to be seen whether Governor Yi will be also the party secretary of the PBOC, which is usually the case but doesn’t have to be so. If he isn’t appointed to be the party chief then, we believe, his authority is likely to be significantly lower that of Mr. Zhou who holds not only the party secretary position, but also holds the more senior position of the vice chairman of the CPPCC(Chinese People’s Political Consultative Committee), which puts him on par with the deputy PM in charge of Financial Affairs in terms of political seniority. Governor Yi will also report to the direct senior, Liu He, who, by virtue of his position, has more influence on policy decisions. However, it remains to be seen how active Deputy PM Liu will be in terms of managing monetary policy.
