Governing Change at China’s Central Bank

Central banks in Japan and the U.K. have turned to a new guard for a change of direction. But China’s sticking with an old hand to address new policy challenges.

Zhou Xiaochuan’s been China’s central bank governor since 2002 and may stay longer. The defining feature of his first decade at the helm of monetary policy was a burgeoning current-account surplus—that peaked at 10.1% of gross domestic product in 2007.

The central bank’s job was to soak up those inflows to prevent inflation and asset-price bubbles. Central bank liabilities swelled to 29.5 trillion yuan ($4.7 trillion) in 2012—equivalent to 56.7% of GDP and up from 5.1 trillion yuan in 2002. Fears of speculative inflows limited the scope for raising interest rates—the main tool of western monetary policy.

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Tom Orlik, Wall Street Journal via CHINA US Focus http://feedproxy.google.com/~r/ChinaUsFocus/~3/nGXVEc41lXU/