Zhou Xiaochuan’s Legacy: China’s Financial Reforms in Past 15 Years

Global Business

Zhou Xiaochuan’s Legacy: China’s Financial Reforms in Past 15 Years

He was the longest-serving central bank governor among the world’s Top 20 economies. At the helm of the People’s Bank of China when his country joined the WTO. Helping maintain stable growth when the rest of the world plunged into recession.

CGTN’s Wang Guan, explains why China’s monetary policies matter.

China’s central bank has made monetary reforms that made these one of the most important currencies in the world. These are Chinese yuan. They now belong to the IMF’s elite basket of five global reserve currencies.

The yuan used to be pegged to the U.S. dollar. That changed in 2005. To make China’s currency reflect its market value better, the People’s Bank of China pegged it, instead, to a basket of 24 world currencies. And adopted other measures that allow it to trade more freely.

The outgoing governor, Zhou Xiaochuan, has been discussing a lot of other animals besides pandas. Like “black swans” and “grey rhinos.” All of which led the PBOC chief to also warn about a possible “Minsky Moment.” A theory that says every boom contains seeds of the next bust.

The 2008 financial crisis was both a “black swan” and a “Minsky Moment.” To stave off catastrophe, China launched stimulus programs that were breathtaking in size.
And its economy continued to grow in near double digits for more than two years-remaining an engine of growth while other economies sank deeper into recession.
Under Zhou, China scrapped controls on interest rates that commercial banks charged on loans and paid on deposits. China’s big four state banks went public, got big injections of foreign reserve capital, cleared bad loans from their balance sheets… In short, they got healthier.

Critics said China’s stimulus efforts helped create debt around 260 percent of China’s GDP. Other risks include “shadow banks” and “real estate bubbles.” In this 40th anniversary year of reform and opening up, many hope the reforms will continue.

Martin Chorzempa discusses the challenges for China’s newly-appointed central bank governor

CGTN’S Rachelle Akuffo spoke to Martin Chorzempa, research fellow at the Peterson Institute for International Economics, on the policy outlook and challenges for China’s new central bank governor.