SINGAPORE: United States Federal Reserve Chair Jerome Powell is almost a household name. Christine Lagarde, head of the European Central Bank, possesses an undeniable star power. The man who runs China’s central bank struggles to achieve even a small measure of that fame, despite the heft of the country – and the extent of the challenges confronting him. That’s changing.
The People’s Bank of China (PBOC) unveiled a slew of measures on Tuesday (Sep 24), including cuts in a key interest rate and the amount of money banks must set aside for reserves. Efforts to juice growth have, until now, been incremental. Further easing was overdue and economists had been anticipating progress in the coming months.
But the manner of delivery, during a rare press conference by Governor Pan Gongsheng, added a dynamic flavour and sent stocks soaring. It followed a more modest step by Beijing announced during a briefing in January.
Could PBOC events, which have long endured a reputation for being staid affairs draped in technocratic language, become must-watch events like those presided over by Powell, Lagarde, and scores of other monetary chiefs? That’s a bit premature, but developments are very encouraging.
SUBSTANCE STILL MATTERSThere’s a lot to be said for packaging steps together and presenting them forcefully. One of Powell’s predecessors, Ben Bernanke, recognised that what you do is only part of the game.
How decisions are perceived, which is almost always about language, is critical.
He set the Fed on a path to greater transparency and, in 2011, began fielding televised questions from journalists every few months. After leaving office, Bernanke wrote that successful policy is 2 per cent action, 98 per cent talk.
Powell agreed: He now holds forth after every Federal Open Market Committee meeting. His spin on the statement is at least as significant as whether rates are raised, trimmed or kept unchanged.
Of course, substance still matters. Having flagged the briefing on Monday, Pan had to deliver on substance. No point in talking if you don’t have anything to say. He didn’t disappoint.
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Commentary: Watch what China does, not just what it says, after unsurprising economic plenum In addition to the reductions, Pan dabbled in forward guidance, saying that reserve requirements may be pared again this year. Funds and brokers will be allowed to borrow from the monetary authority to buy stocks, while China is also studying a market stabilisation fund.
The word “bazooka” has been bandied around to describe the initiatives. While they are certainly noteworthy, it remains seen whether they alter the underlying course of the economy, which was in a long-term slowdown well before the COVID-19 pandemic.
Shifts in policy, especially if unveiled with bells and whistles, tend to be greeted as breakthroughs. If what transpired on Tuesday kicks off a new phase in efforts to boost growth, well and good. Should there be little follow through, then the pessimism that has characterised discussions of China’s economy in recent years will persist.
PBOC POLICY EVOLVING IN RIGHT DIRECTIONIt’s worth considering how Pan’s performance compares with the reputation that preceded him.
When he arrived in the governor’s office in July last year, China was on the cusp of a nasty run of very poor inflation numbers. Unlike the other major economies, where inflation rose sharply as the pandemic abated, China experienced the opposite: Consumer prices declined for several months and the pace of increases seven months later now hovers worryingly close to zero.
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Commentary: China’s GDP grew more than expected, but is its data reliable? Pan was considered a hawk at the time of his appointment. He’s done nothing to justify that early branding.
Central bankers certainly come to their gigs with philosophies and preferences, but circumstances matter greatly. It might surprise many to know that when Bernanke was installed as chair in 2006, he, too, was considered a hawk. By the time he left in 2014, he had presided over a period of easing once thought to be only possible in Japan.
It’s fine to argue that China should have done much more before this week – and should be still bolder going forward. In Pan’s defence, policy is evolving in the right direction. And unlike many of his counterparts, the PBOC doesn’t make decisions independently; China’s system isn’t set up that way.
Pan can’t aspire to be Maestrojilievo online gaming, the title of a book on Alan Greenspan by Bob Woodward that was published 2000 when the legendary Fed boss was at the zenith of his power. The good news is that the orchestra in Beijing may finally be getting in tune.