Tuesday, August 16, 2005

Wow, the Planning Commission, or the National Development and Reform Commission, recently criticized the PBOC for empire building through Huijin on its website. This is one of the few rare instances when bureaucratic rivalries boiled into the open. Also, I am surprised that it is the NDRC and not the MOF that has criticized the PBOC. The MOF, as the traditional "owner" of major financial institutions, was the big loser with the foreign exchange recapitalization of the major state banks. Mm, I wonder who is behind these NDRC statements?? Ma Kai? or his superior Zeng Peiyan, who is opposed to Wen's bailout scheme......mmmmm

Tuesday, August 16, 2005

Economic planner criticises PBOC's reforms


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Beijing's key economic planning body, the National Development and Reform Commission, yesterday lashed out at the central bank's reform policies in an unusual display of bureaucratic infighting.

The commission, arguably the most important body with responsibility for the economy within the government structure, sharply criticised the People's Bank of China for overstepping its mandate on two large banking and securities reform programmes.

"The monetary operations of the central bank should avoid fiscal bailouts and stop grabbing more power from the Ministry of Finance to form another fiscal distribution channel because it is distorting," the commission said on its website.

The central bank has spent US$60 billion in foreign exchange since the end of 2003, shoring up the capital bases of three of the four state-owned commercial banks.

Ratings agencies such as Standard and Poor's have said such moves raise corporate governance issues.

The central bank has also recently started rescuing the embattled brokerage industry through soft loans.

Although Beijing is rife with factional infighting, disagreements are rarely aired and then only through the published opinions of research bodies under the various ministries.

The commission also said interest rates should be raised from current levels and that the government should counteract any corresponding increase in capital controls with tougher oversight and through the buying and selling of foreign exchange.

The central bank raised benchmark deposit and lending rates by 27 basis points each at the end of October last year and has signalled that it will not raise interest rates in the near future.

Separately, the commission said Beijing needed to avoid a rise in the yuan of more than 2 per cent, arguing that any greater appreciation would make the exchange rate too volatile.

"If we control the yuan flotation exchange rate to within 2 per cent both up and down, it will avoid big volatility and, in the meantime, relieve pressure on the yuan to appreciate," it said.

The yuan was revalued by 2.1 per cent at the end of last month. Since then the currency has been allowed to float 0.15 per cent higher under a new exchange rate regime which uses a basket of currencies as a reference to set the yuan's value.

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