China’s New Path

The opaque nature of China’s government makes it difficult to see where Chinese economic policy is heading, and thus how the Chinese economy will develop in the years ahead. But China’s new leaders have signaled where they want the economy to go, and, most important, they have put talented people in charge of the process.

CAMBRIDGE – The opaque nature of China’s government makes it difficult to see where Chinese economic policy is heading, and thus how the Chinese economy will develop in the years ahead. But the scale of China’s economy and its role in global trade and financial markets compel us to try to understand the intentions of China’s new leadership.

A useful starting point is to examine the key appointments that have been made since President Xi Jinping assumed office. One surprise was the decision to retain Zhou Xiaochuan as Governor of the People’s Bank of China (PBOC). Zhou had come to the end of his term – and had reached an age at which officials are supposed to retire. So the decision to keep him on for at least the next two years represents a significant endorsement by the new Chinese leadership.

Zhou is an intelligent and internationally respected expert on monetary policy and finance. As the head of the PBOC, he has favored more market-based monetary policies and increased internationalization of China’s currency, the renminbi. He has also worked successfully to contain inflationary pressures. We can expect more of the same in the coming years.

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