Daily Management Review

Scholar Says Political Appointees Not As Important As Financial Ones In China For The Economy


Scholar Says Political Appointees Not As Important As Financial Ones In China For The Economy
A leading China scholar is of the view that during the ongoing leadership confab of the Chinese Communist Party, there should not be too distraction by who is elevated to the top ranks of the for the investors interested in China.
According to Eswar Prasad, who was formerly the International Monetary Fund's head for China, the most important information about the country's economic future will come from the new names in various Chinese financial agencies, instead.
A new crop of leaders into the top echelon of the party is expected to be ushered in from the once-every-five-years meeting that is ongoing in China. President Xi Jining is expected to extend his term.
After 15 years at the helm of the People’s Bank of China, the imminent retirement of central banker Zhou Xiaochuan assumes importance alongside the political reshuffle.
"What comes in the weeks and months following [the conclusion of the party congress] in terms of the policy actions that we see, appointments to some of the top agencies related to the financial markets including the PBOC governorship position — those are going to be far more important in setting the tone for macroeconomic policies and financial markets policies in general over the coming years," Prasad, who is now a China scholar and professor at Cornell University, said Friday.
The central bank head position in particular "plays a critical role when one thinks about what happens to the financial markets, exchange rate policy, capital account opening — all of which feeds into thinking about the market orientation of the economy," added Prasad.
Xi called for a strong government presence in the economy in the same speech  but expressed support for market reform and private firms on Wednesday at the opening of the party congress.
Prasad warned of how those two "inconsistent notions" could result in moral hazards and contribute to market volatility.
"The reality is that it's very difficult for markets to function well if you have the government overseeing them to the extent that it gets directly involved in them in the guise of stability and control," Prasad said. "That confuses markets a great deal."
Despite frequent rhetoric about the importance of making changes, China's implementations of economic and financial reforms have only been gradual, Prasad said like many observers.
There's also the concern that the government could revert to old habits to keep growth high and quell social unease while some are hoping that a more powerful Xi will be able to push through structural and economic reforms more thoroughly.
Warnings of a sudden collapse in asset prices came before Prasad's comments.
Reuters reported that Zhou said that corporate debt levels are relatively high, but household debt is rising too quickly, speaking on the sidelines of the conference.
In solutions to which may be held back by the new PBOC governor, recent interviews and comments by Zhou are important in signaling issues in the Chinese economy and financial system, Prasad said.
"There is a real concern that those could be the reforms, that in the absence of which, you don't get significant market-oriented reforms or the economy going in the right direction," said Prasad.

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