Yi Gang speaks during a news conference on the sidelines of the fourth session of the 12th National People’s Congress (NPC) in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

PBOC Signals Yi to Run China’s Monetary Policy, Guo in `Support’

(Bloomberg) -- A week after Yi Gang was appointed governor of China’s central bank, the institution is seeking to reassure investors that he’s the guy at the helm.

On Monday night in Beijing, the People’s Bank of China updated the leadership section of its website to show that Guo Shuqing, the chairman of the PBOC’s banking regulation counterpart, would also serve as the Communist Party secretary at the central bank. Minutes later came a separate statement signaling Yi would be the one running monetary policy.

Guo, who’s officially chairman and party chief at China Banking and Insurance Regulatory Commission, will be a deputy PBOC governor to Yi, while Yi will be the deputy party chief to Guo. The account lists Yi’s comments first and cites him as telling his fellow cadres that he’ll manage “all aspects of work at the central bank” well. That’s followed by a summary of comments by Guo, who said he completely supports Yi’s role as governor.

With a balance sheet of $5.7 trillion and an increasingly influential role in global markets, clearing up who does what is key for global investors. That’s doubly important at a time when China has to calibrate its response to tightening by the U.S. Federal Reserve and some signs of rising domestic inflation pressure.

Primary Responsibility

“There are some uncertainties about the effective situation since the top leadership has repeatedly emphasized the fact that ‘the party controls everything," Goldman Sachs Group Inc. economists Song Yu and MK Tang wrote in a report. For now though, Monday’s statement means that “Yi has primary responsibility at the central bank,” they wrote.

The Goldman Sachs economists said they expect “broad policy continuity, though with better coordination between the central bank and the CBIRC.”

The management changes were announced Monday afternoon at a Communist Party meeting at the PBOC, according to the statement. The gathering was chaired by Comrade Zhou Xiaochuan, who’s retiring after 15 years as governor in which he also held the party boss role, and attendees were listed as Yi, Guo, and other PBOC leadership team members.

What Our Economists Say: 

“To the extent that there’s a division of responsibilities, we expect Yi to lead on monetary policy and the exchange rate, while Guo will be more involved in financial reforms and macro-prudential policy,” Tom Orlik, chief Asia economist for Bloomberg Economics in Beijing, wrote in a report. “The risk is that the PBOC -- already one of the most opaque major central banks in the world -- gets even harder to read. With China’s markets already on edge over deleveraging, the cost of mixed signals could be high.” 

A feature of political life in China is that seniority is often something inferred rather than explicit. In this case, Yi’s charge of the central bank could also be read in the fact that his name was mentioned first in the institution’s press release announcing the new leadership team.

In the end, the economic and financial policy in China is now likely the purview of Liu He, Xi’s trusted adviser who now has the rank of vice premier. That means both Guo and Yi ultimately answer to Liu.

©2018 Bloomberg L.P.