Deep Dive: "China’s ‘two sessions’ 2024: new mandate, party control push central bank beyond ordinary role"

From the formerly independent, now sort of independent, South China Morning Post, March 11:

• Proposed revision to law governing China’s central bank, as well as leadership and structural changes which have already occurred, suggest new mandate
• Focus on promoting growth, development, avoidance of sanctions would redefine role outside standards which characterise central banks in the West

Wang Qishan’s phone was ringing, and the news was grim.

When Wang, then vice-premier of China, answered an emergency call from US Treasury Secretary Henry Paulson in 2008 – the year the global economy was upended by the subprime mortgage crisis – he was preparing for an investment fair in the southern city of Xiamen.

Wang, known even then for his hands-on experience defusing fiscal troubles, had planned to use the fair to assure overseas investors of the speed with which China was embracing global norms – but the financial tsunami coming from across the Pacific seemed a more pressing matter.

Rather than take drastic action to silo China from the US and insulate its economy from what already looked like a ticking time bomb, Wang promised his old friend the country would not dump its massive holdings of US treasury bills.

Though that news was a massive relief for the imperiled US economy, it did not come lightly. According to Paulson’s memoir, published in 2010, Wang ended the call with a warning: “I know you think this may end all of your problems, but it may not be over yet.”

If anything, that was an understatement. The earth-shattering event that followed – brought on by deregulation, speculation, over-leveraging and a reckless intrusion of Wall Street into housing markets – triggered a widespread reconsideration of the Western model by economists and cadres in China’s financial sector.

That decisive moment, and the years of tensions and trade war that would follow, hardened Beijing’s determination to walk a different road.

Those sentiments have reached an inflection point. In early December, following China’s twice-a-decade central financial work conference, the country’s top financial regulatory commission declared the country has “fully learned the lessons of Western financial development” and touted the features that distinguish socialist China from the “monopolistic, predatory and vulnerable” capitalist framework.

To codify these ideas, the People’s Bank of China (PBOC) – essential to President Xi Jinping’s explicit ambition of building the country into a “financial superpower” – will fall under stricter Communist Party control following a revision to the 42-year-old Organic Law of the State Council.

The amendment is expected to be approved by lawmakers at this year’s session of the top legislature, which will end on Monday.

In China’s context, the party is always in charge of all major matters

—Rui Meng

For many observers, the PBOC has already departed from its ostensible mission to become a Western-style central bank. Those institutions, like the US Federal Reserve and the European Central Bank, carry relative independence in policymaking and hold inflation control as their primary responsibility.

Instead, two laws in the drafting process appear poised to more explicitly define the bank’s role as a powerful engine for Beijing’s economic prosperity – particularly its real economy, or non-financial sectors, which are proportionally far greater than those of the US.

It will step in to defuse risk for property markets, local debtors and small banks, and serve as a gatekeeper for financial security, both in terms of domestic markets and in countermeasures for potential Western sanctions.

“In China’s context, the party is always in charge of all major matters,” said Rui Meng, a professor of finance at the China Europe International Business School in Shanghai.

“A smaller, more streamlined but powerful central bank is a key pillar of the ambitions [to be a] financial superpower.”

On the surface, last year’s overhaul of the financial regime seemed to have weakened its independence, with a new party body – the Central Financial Commission, headed by Premier Li Qiang and with daily operations overseen by Vice-Premier He Lifeng – at the pinnacle of decision-making.

 

Some of the PBOC’s functions, like oversight of financial holding companies and consumer rights protection, have been absorbed by the newly established National Administration for Financial Regulations and the China Securities Regulatory Commission.

 

And in terms of personnel, bank governor and party secretary Pan Gongsheng – who replaced Yi Gang as governor last July – is not even a full or alternate member of the party’s powerful Central Committee.

However, as Xi enumerated in a speech at the Central Party School in January, success for the country’s broad financial aspirations will rest on several factors, a strong central bank among them.

With the volume of change already undertaken and in the works, Rui said, the question of whether the PBOC resembles its Western peers is no longer relevant.

“It has been assigned important tasks,” he said. “The new central bank has become focused on fewer tasks, but they are more vital, and ones Western central banks [seldom do]: serving the economy and fighting risk.”...

....MUCH MORE

So are we back to the old "Mandate of Heaven?"