Title: China’s New Central Bank Governor Faces the Daunting Task of Financial Challenges
Date: July 27, 2023
In a bid to combat the ongoing economic crisis and stabilize the exchange rate, Pan Gongsheng, the newly appointed governor of the Central Bank of China, has been ordered to take immediate action. The expectations from the ruling party, led by President Xi Jinping, are high, as Pan Gongsheng faces the uphill battle of saving both the exchange rate and local finances.
Pan Gongsheng, a well-regarded Chinese economist, was appointed as the party secretary of the People’s Bank of China on July 1, and subsequently assumed the role of governor of the central bank on July 25. This decision brings back the traditional mode of party secretary and governor shouldering the responsibility. Furthermore, he also serves as the director of the State Administration of Foreign Exchange, solidifying his position as a key figure in China’s financial landscape.
The challenges ahead of Pan Gongsheng are multifaceted. In addition to managing the exchange rate, he is tasked with tackling the mounting debt crisis faced by the banking system. This includes addressing the debt issues of major real estate companies such as Evergrande. The Chinese government expects Pan Gongsheng to introduce more efficient and effective financial measures to address these pressing concerns.
However, some experts have raised concerns about the increasing interference of the ruling Chinese Communist Party (CCP) in financial matters. Cai Shenkun, a senior financial commentator, suggests that the role of the People’s Bank of China has been significantly weakened as the party replaces the government and establishes a new Central Financial Administration to supervise financial institutions. Despite these challenges, Pan Gongsheng is favored for his professional knowledge and for not being associated with any political factions.
Economist Cheng Xiaonong highlights the delicate balancing act that the Central Bank of China must perform, serving political objectives while adhering to financial principles and laws. The primary goal is to implement President Xi Jinping’s requirements and satisfy his demands. Cheng Xiaonong emphasizes that Pan Gongsheng’s ultimate duty is to serve Xi Jinping’s directives, rather than solely focusing on resolving China’s financial issues.
Recent reports indicate that large state-owned banks have been providing long-term loans to local government financing platforms, temporarily waiving interest payments in an effort to alleviate the crisis. However, this strategy risks burdening the already strained banking system and may have severe consequences.
Cheng Xiaonong warns that prioritizing the rescue of the exchange rate and local governments could come at the expense of the banks, potentially pushing them towards the brink of collapse. The decision to let the banks cover the debts of the finance sector without considering their survival may have dire implications. Cheng Xiaonong suggests that President Xi Jinping’s limited understanding of the banking system’s vulnerability exacerbates the situation. This scenario, combined with reports of banks in Shenzhen restricting withdrawals by Hong Kong residents, raises concerns about the risk of potential bank explosions.
In conclusion, Pan Gongsheng’s appointment as the new governor of the Central Bank of China comes with immense responsibility and challenges. The need to save the exchange rate and manage the debt burden while also satisfying the political objectives of the ruling party creates a delicate balance. Time will tell if Pan Gongsheng can navigate these tumultuous waters successfully and steer China’s economy toward stability.
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