http://www.pbc.gov.cn/publish/english/982/index.html Monetary Policy Executive Report
http://www.pbc.gov.cn/publish/english/964/index.html Rules and Regulations
http://www.pbc.gov.cn/publish/english/955/index.html News http://www.pbc.gov.cn/publish/english/958/index.html Surveys and statistics
The People's Bank of China (PBC) was established on December 1, 1948 based on the consolidation of the Huabei Bank, the Beihai Bank and the Xibei Farmer Bank. In September 1983, the State Council decided to have the PBC function as a central bank. The Law of the People's Republic of China on the People's Bank of China adopted on March 18, 1995 by the 3rd Plenum of the 8th National People's Congress has since legally confirmed the PBC's central bank status.
With the improvement of the socialist market economic system, the PBC, as a central bank, will play an even more important role in China's macroeconomic management. The amended Law of the Pople's Republic of China on the People's Bank of China, adopted by the 6th meeting of the Standing Committee of the 10th National People's Congress on December 27, 2003, provides that the PBC performs the following major functions:
(1) Drafting and enforcing relevant laws, rules and regulations that are related to fulfilling its functions;
(2) Formulating and implementing monetary policy in accordance with law;
(3) Issuing the Renminbi and administering its circulation;
(4) Regulating financial markets, including the inter-bank lending market, the inter-bank bond market, foreign exchange market and gold market;
(5) Preventing and mitigating systemic financial risks to safeguard financial stability;
(6) Maintaining the Renminbi exchange rate at adaptive and equilibrium level; Holding and managing the state foreign exchange and gold reserves;
(7) Managing the State treasury as fiscal agent;
(8) Making payment and settlement rules in collaboration with relevant departments and ensuring normal operation of the payment and settlement systems;
(9) Providing guidance to anti-money laundering work in the financial sector and monitoring money-laundering related suspicious fund movement;
(10) Developing statistics system for the financial industry and responsible for the consolidation of financial statistics as well as the conduct of economic analysis and forecast
(11) Administering credit reporting industry in China and promoting the building up of credit information system;
(12) Participating in international financial activities at the capacity of the central bank;
(13) Engaging in financial business operations in line with relevant rules;
(14) Performing other functions prescribed by the State Council.
Objective of the Monetary Policy
The objective of the monetary policy is to maintain the stability of the value of the currency and thereby promote economic growth.
Monetary Policy Instruments
The monetary policy instruments applied by the PBC include reserve requirement ratio, central bank base interest rate, rediscounting, central bank lending, open market operation and other policy instruments specified by the State Council.
Monetary Policy Committee
Article 12 of the Law of the People's Republic of China on the People's Bank of China provides " the People's Bank of China is to establish a monetary policy committee, whose responsibilities, composition and working procedures shall be prescribed by the State Council and shall be filed to the Standing Committee of the National People's Congress. The Monetary Policy Committee shall play an important role in macroeconomic management and in the making and adjustment of monetary policy."
Rules on Monetary Policy Committee of the People's Bank of China stipulates that the Monetary Policy Committee is a consultative body for the making of monetary policy by the PBC, whose responsibility is to advise on the formulation and adjustment of monetary policy and policy targets for a certain period, application of monetary policy instrument, major monetary policy measures and the coordination between monetary policy and other macroeconomic policies. The Committee plays its advisory role on the basis of comprehensive research on macroeconomic situations and the macro targets set by the government.
The Monetary Policy Committee is composed of the PBC's Governor and two Deputy Governors, a Deputy Secretary-General of the State Council, a Vice Minister of the State Development and Reform Commission, a Vice Finance Minister, the Administrator of the State Administration of Foreign Exchange, the Chairman of China Banking Regulatory Commission, the Chairman of China Securities Regulatory Commission, the Chairman of China Insurance Regulatory Commission, the Commissioner of National Bureau of Statistics, the President of the China Association of Banks and an expert from the academia.
The Monetary Policy Committee performs its functions through its regular quarterly meeting. An ad hoc meeting may be held if it is proposed by the Chairman or endorsed by more than one-third of the members of the Monetary Policy Committee.
The opinions expressed in the meeting of the Monetary Policy Committee will be recorded in the form of "meeting minutes". Such minutes or any resulted policy advice, if approved by more than two-thirds of the members of the Monetary Policy Committee, should be attached as an annex to the proposed decisions of the PBC on annual money supply, interest rates, exchange rates or other important monetary policy issues to be reported to the State Council for approval. In the case the PBC files its decisions on other monetary policy related issues with the State Council, it should enclose the meeting minutes or policy advice of the Monetary Policy Committee at the same time.
People’s Bank of China cuts reserve requirement ratio by 50 bps
19 February, 2012,
Yesterday, the People’s Bank of China announced that the reserve requirement ratio will be reduced by 50 basis points, effective on 24 Feb 2012. The RRR is currently standing at 21% for large banks, thus the reserve requirement ratio for large banks will stand at 20.5% after the cut. With about RMB80 trillion of total deposits, the reduction in RRR should theoretically made about RMB400 billion of deposits available for lending.
This is the second RRR cut since the tightening cycle ended last year. However, as pointed out late last year, with modest capital outflow and shrinking foreign exchange reserve (if the trend continues into the year), monetary conditions will be tightened by itself even without the central bank attempting to withdraw liquidity. As a result, the latest cut in RRR will probably be a measure to offset the tightening bias of the monetary condition. We will certainly need to have more data points in the coming months to be really sure that the above mentioned things will continue well into late this year, but the view here remains that the move is to offset tight liquidity condition rather that to support growth outright.
Aussie Gets Boost from People’s Bank of China Australian dollar got a boost in earlier trading as the governor of the People’s Bank of China reassured Europe — and the world — that China is still committed to investing in the euro as an asset. The news provided a little bit of risk appetite in the midst of uncertainty. Aussie is also receiving help from the Reserve Bank of Australia, which continues to show caution about cutting interest rates.
Worries about the eurozone are cropping up again as a Greek debt deal is delayed again. However, PBOC Governor Zhou Xiaochuanexpressed his confidence that the eurozone would be able to navigate the trouble, and he reiterated China’s support for the euro. This show of faith helped give the Aussie a bit of a boost — even if it failed to help the euro much against the US dollar.
People’s Bank of China Plans $300 Billion Investment Vehicle, Reuters Says
Dec 10, 2011
China’s central bank plans to create a new investment vehicle to manage $300 billion in foreign reserves, Reuters reported yesterday, citing two unidentified people familiar with the matter.
The vehicle will manage two funds, targeting investments in the U.S. and Europe, and will be affiliated with the State Administration of Foreign Exchange, the news agency said. The funds will pursue “more aggressive” overseas investments to generate higher returns, possibly through the purchase of stock in overseas-listed companies, Reuters said.
China’s foreign exchange reserves, the world’s largest, were $3.2 trillion at the end of September. The nation invests in international bonds such as U.S. Treasuries and sovereign debt from European Union members. China wants to convert some reserves into investments in the U.S., Commerce Minister Chen Deming said Dec. 2.
“Foreign exchange reserves are used to protect your economy in a currency crisis, but by any reasonable measure, China has far more reserves than it needs for that purpose,” Mark Williams, Asia economist at London-based Capital Economics Ltd., said in a telephone interview. “It makes sense for them to maximize the returns of this excess fortune.”
China Investment Corp., the nation’s sovereign wealth fund, already invests a portion of the reserves in financial instruments including equities. CIC managed $409.6 billion at the end of 2010, making it the world’s fifth-largest national fund, according to Sovereign Wealth Fund Institute.
CIC’s international investments returned 12 percent last year, compared with the MSCI World Index’s 9.6 percent gain, according to the fund’s annual report. CIC isn’t operated by the central bank.
“There have been expectations that CIC would get extra cash,” Williams said. “It’s interesting that cash is being doled out to a new investment vehicle. The Chinese government is effectively creating a number of separate sovereign wealth funds which presumably can introduce some competition between them.”
The new venture will operate similarly to the central bank’s Hong Kong-based SAFE Investment Co., which has purchased shares in “dozens” of overseas listed companies, Reuters said yesterday. While details of the venture are still under discussion, the central bank has picked “key” managers, Reuters said.
The venture will issue domestic bonds for funding, similar to how CIC raises money, Reuters said.
The People’s Bank of China doesn’t have a comment on the report, a central bank press official who declined to be identified because of bank rules said in a telephone interview yesterday evening.
China’s foreign-exchange reserves continued to fall through this month, after starting to decline at the end of September, Li Yang, a former adviser to the nation’s central bank, told an economic forum on Dec. 7.
The reserves increased the least in more than a decade last quarter and declined in September for the first time in 16 months, according to the central bank, which releases the data quarterly. Li didn’t say how he knew that foreign reserves were falling or give a reason for the declines.
The entry of foreign currency into China fuels growth in the nation’s money supply, instead of spurring appreciation of the yuan, because the central bank limits the currency’s gain. In response, the central bank sold bills and ratcheted up reserve requirements for lenders during the past two years to rein in liquidity.
“China has only two options: decrease foreign reserves or invest them in developed nations’ currencies, even if doing so incurs a loss,” Ayako Sera, a market strategist in Tokyo at Sumitomo Trust & Banking Co., which manages the equivalent of $322 billion, said last month.
The nation needs large markets that can accommodate its foreign assets, so it has “no choice” save to own euro, dollar and yen assets in good balance, Sera said.
China outlines plan to loosen capital controls
February 23, 2012
Chinese reformers have called for the dismantling of one of the last and biggest walls that cloisters their giant economy from the rest of the world.
A three-step plan published by the Chinese central bank is the most detailed public proposal yet for loosening the government’s strict capital controls. If implemented as envisaged, the global economic landscape will undergo sweeping changes this decade.
Foreign investors will be much bigger players in Chinese stock and bond markets, which are now largely closed to them. The renminbi will take on a bigger international role, eating into the dollar’s dominant position. Chinese companies will buy up far more of their American and European peers which have been weakened by the global financial crisis.
But whether the reforms can in fact be implemented as envisaged is the big question. While reformers are pressing for faster change ahead of a once-in-a-decade leadership transition this year, that transition itself is expected to put sand in the gears of the political system, with officials prizing policy stability amid big personnel changes.
“If you think about the political reality, I don’t think that financial market liberalisation will happen in a big bang,” said Zhu Haibin, an economist with JP Morgan.
It is not the first time that capital account liberalisation has been discussed in Beijing. Deng Xiaoping, the leader who set China on its path from Maoism towards a free market, said in 1993 that gradually allowing the renminbi to become a convertible currency was a crucial objective.
Gradual has been the operative word since then. Even as China has flung its doors open to global trade, it has erected vast roadblocks to stymie capital flows. In one indication of the glacial pace of opening, foreign banks manage less than 2 per cent of the assets in the country’s financial system.
China’s capital controls have served it well. It was little harmed by the Asian financial crisis of 1997-98 and has been largely insulated from the global tumult of the past four years. That resilience in the face of external trouble has emboldened conservatives in Beijing who support the status quo.
But there are also problems in maintaining such rigid capital controls. Chinese savers have few investment outlets for their money and plough it into the property market instead. Perhaps most important from a political standpoint, plans to transform the renminbi into a rival to the dollar have run into difficulty – foreign companies do not want a currency that cannot be invested in its country of origin.
“Internationalisation of the renminbi is now a clear mandate, so resistance for capital account liberalisation has been diminishing,” said Liu Li-gang, an economist with ANZ. “The wind has shifted.”
China’s top leaders have given a series of signals in recent months that they want capital account reforms to get into gear.
Li Keqiang, the man likely to succeed Wen Jiabao as premier later this year, visited Hong Kong last August and pledged to do more to build it into an offshore market for the renminbi. Then in January, the country’s central planning agency published a roadmap for turning Shanghai into a global financial centre, something that can only be achieved with much more openness to capital flows.
Finally, earlier this month, Mr Wen reached for a quote from Deng Xiaoping, the original arch-reformer, that encouraged those wanting change: “Opening up and reform should be implemented unswervingly, or there will only be a dead end.”
Yet reform, when it comes, will not be radical.
The proposal from the central bank was cautious. It was not written by the bank’s governor, nor was it published on its official website. Instead, the author was Sheng Songcheng, head of the bank’s statistics department, and it was printed in a newspaper managed by Xinhua, the state news agency.
The central bank was also careful not to push the envelope in its timeline for reform. It will be five years before Beijing reaches the stage in the plan where it opens its stock and bond markets more widely to foreigners. As for making the renminbi fully convertible, that was declared to be “the final step” and no deadline was set for it.
That the strongest voice for reform in China is still so cautious may be a disappointment to those wanting the country to open up more quickly.
But Louis Kuijs, a former World Bank economist in Beijing, noted that a common thread in financial crises in emerging markets over the past two decades had been excessive haste in allowing the free flow of money across borders.
China cuts 2012 growth target to 8-year low of 7.5%
Reuters Mar 5, 2012, 05.41PM IST
BEIJING: Chinese Premier Wen Jiabao cut his nation's 2012 growth target to an eight-year low of 7.5% and made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.
He lowered the target from a longstanding annual goal of 8%, a move investors anticipated so that Beijing has some economic leeway to rebalance the economy and defuse price pressures in the run up to a leadership change later this year.
Lower growth will allow Beijing to reform key price controls without causing an inflation spike, so monetary policy can stay broadly expansionary to ensure a steady flow of credit to the small and medium-sized firms the government wants to encourage.
"We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach," Wen said in his annual work report to the National People's Congress (NPC), China's annual parliamentary session.
The premier named "expanding consumer demand" as his first priority for 2012, when the ruling Communist Party must also navigate a leadership handover that will send Wen and President Hu Jintao into retirement in 2013.
"We will improve policies that encourage consumption," Wen told nearly 3,000 delegates of the Communist Party-controlled legislature, gathered under the harsh lights and high ceilings of the Great Hall of the People.
"We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people's ability to consume," said Wen.
His annual state-of-the-nation report to parliament dwelled on the institutional and income barriers the government must break to build a more balanced economy that relies less on exports and shares more wealth with hundreds of millions of poor farmers and migrant workers who are reluctant to spend.
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