Elite Chinese Politics and Political Economy

As many expected, the PBOC raised reserve requirements once again. This is done to control inflation....etc. Dear investors of Chinese commercial banks, this also squeezes the profit margins of banks. PBOC bonds, which is another way of soaking up liquidity, would have given banks a 3% yield, which is roughly 1.5% above the average deposit interest rates. In contrast, required reserves only pay 1.89%. As you can see, there is over 100 basis points in forgone profits. Conclusion: the more liquidity is soaked up by reserve requirement increases rather than by PBOC bond sales, the more bank profits are being squeezed. Mm, shouldn't the China Banking Association do some lobbying, complaining....etc.? What about foreign institutional investors? By the way, some are saying that a few more reserve requirement increases are expected this year.


(From THE WALL STREET JOURNAL)

· By Rick Carew and J.R. Wu

BEIJING -- For the seventh time in less than a year, China's central bank raised the share of deposits banks must keep on reserve as the government struggles to soak up capital and keep the country's economy from overheating.

The move, which was announced yesterday and takes effect May 15, follows accelerated economic growth and an uptick in inflation indicators. The government announced this month that gross domestic product, or the total value of goods and services produced, expanded at a faster-than-expected 11.1% in the first quarter.

Economists had expected the government to take further measures to tighten money supply around tomorrow's May Day holiday and said that in coming weeks the People's Bank of China could implement even more measures -- including a rate increase -- to contain upward pressure on prices and slow growth from the blistering pace of the first quarter.

The central bank said on its Web site yesterday that the increase in reserve ratio is aimed at "strengthening the management of liquidity in the banking system" and guiding "the reasonable growth of credit."

Still, economists said increases to the reserve ratio have so far achieved little, if any, of their desired effect. The newly announced increase will bring the reserve-requirement ratio -- the share of deposits that lenders must keep with the central bank -- up half a percentage point to 11% for most banks. The increase, in theory, reduces the amount available to banks to lend, though in practice many Chinese banks already keep more than the minimum on reserve.

"The past two years of experience in China has shown that [reserve-ratio] changes are an ineffective policy tool to control monetary expansion," Hong Liang, a Hong Kong-based Goldman Sachs economist, said in a research note after the increase was announced. Such ratio increases are "simply not binding on banks' capabilities to lend," Ms. Liang said.

Behind the flush liquidity in the domestic economy is China's booming trade surplus, or margin by which exports exceed imports, and the central bank's intervention to keep the value of the domestic currency from appreciating too quickly as a result. The central bank pays out yuan to banks to buy their dollars, pumping cash into the economy.

Because many investors believe the reserve-requirement increase signals the government's resolve to continue employing tightening measures, the move could cause traders to push domestic shares lower in trading today -- the last day China's markets are open before a weeklong holiday. But any selling is likely to be limited, analysts said.

"The People's Bank tightened at this juncture to give the markets a little time to digest this increase," said Jing Ulrich, chairwoman of China equities at J.P. Morgan & Co. "This one hike alone won't trigger a major selloff."

The acceleration in China's economic growth, driven in significant part by bank lending to new investment projects, has forced Beijing to pull a variety of monetary-policy levers since last year. It has also enacted administrative measures to cool sectors such as property and steel, which threaten to push prices higher. The latest reserve-ratio increase is the second in a month.

China's consumer-price index rose 3.3% in March and 2.7% in the first quarter, compared with a year earlier. That pickup has sparked concerns that after muted inflation in recent years, rising production capacity might no longer be able to counterbalance demand, and a surge in prices could be ahead for the world's fastest-growing major economy.

"If the inflation rate continues to climb, if the momentum of fixed-asset investment growth doesn't slow down, and if the asset prices rise too quickly, the central bank definitely will tighten further," said Yu Yongding, a professor and former member of central bank's monetary-policy committee.

---

Victoria Ruan and Rose Yu contributed to this article.

Well, yet another senior official comes under investigation by the Central Discipline and Inspection Commission--this time at my home away from home Haidian District in Beijing. Zhou Liangluo, the ambitious party secretary of Haidian District, was detained by the CDIC on charges of corruption. Anyone who regularly visits Haidian can tell you that the district underwent complete transformation between 2000 and today. It is not surprising--indeed it is expected-- that there be at least some dirty dealings. Note, at the bottom it says that Zhou Liangluo used to work under former Haidian District Chief Tan Weike, who was former Beijing party secretary and current Politburo Standing Committee member Jia Qinglin's personal secretary. Is this a way to get to Jia? I don't think so. They have plenty of ammunition on Jia and his wife. I don't think the CCP wants anti-corruption probe to reach all the way to the top. At most, this is another way of neutralizing Jia Qinglin's political power in the upcoming 17th Party Congress.

反腐矛头指向北京 周良洛遭调查

(2007-04-12)

　　（联合早报网讯）据中时电子报报道，在拉下上海市委书记陈良宇之后，中共反腐矛头是否指向北京，成为海外对中共政治斗争的主要关注焦点之一。上海《第一财经日报》昨天证实，北京海淀区区长周良洛已经被中共中央纪委人员带走，至今仍在接受调查。

　　报道说，海淀区多位不愿意透露姓名的工作人员证实，周良洛确实是在本月六日晚上被中纪委人员带走的，至今仍在接受调查。

　　上海《第一财经日报》并引述「内部人士」的话说，周良洛事件的不寻常之处，在於周良洛是由中央纪委直接带走调查，他这个级别的官员，正常情况下应由北京市有关部门调查。

　　中国国家行政学院一位教授在接受该报采访时表示，出现这种情况有两种可能：一种可能是有举报人直接向中纪委举报，纪检工作的原则是向哪一级机关举报，就由哪一级机关受理；另外一种情况，是在办理某个案件时牵出来的，「拔出萝卜带出泥，连带出来谁就直接查谁」，该教授表示。

　　如果是后一种可能，即中共中纪委在调查某一要案时带出了周良洛，就符合了海外的一些传言。现年四十九岁的周良洛，自二○○二年底开始担任海淀区长，而海淀区委书记谭维克，则是中共政治局常委、全国政协主席贾庆林从福建带上北京的秘书。此前，贾庆林於一九九九年至二○○二年间担任北京市委书记。

周良洛，男，汉族，江西省铅山人，1958年11月出生，1976年8月参加工作，1981年10月加

入中国共产党，大学学历，工学学士、法学学士学位，副研究员。

　　1976年8月至1978年6月　河南省中牟县孟庄公社插队、民兵连连长

　　1978年6月至1983年7月　清华大学电机系高电压技术与设备专业学生

　　1983年7月至1984年8月　清华大学团委组织部部长

　　1984年8月至1986年7月　清华大学社会科学系思想政治教育专业学生

　　1986年7月至1988年3月　清华大学党委学生部主任科员

　　1988年3月至1989年9月　清华大学团委副书记

　　1989年9月至1993年12月　清华大学团委书记、学生部副部长、学生处副处长

　　1993年12月至1994年12月　中共朝阳区委常委

　　1994年12月至2000年1月　中共朝阳区委常委、宣传部部长

　　2000年01月至2002年3月　中共朝阳区委常委、区人民政府常务副区长

　　2002年3月至2002年4月　中共海淀区委副书记、中关村科技园区管理委员会第一副主任
(Bio on Google Translate: Zhouliangzhi Lofa, male, Han nationality, Yanshan Jiangxi Province, was born in November 1958, August 1976 and participated in work in October 1981 and joined the CPC in tertiary education and work degree, a Bachelor of Laws degree researcher. From August 1976 to June 1978 Commune seam Zhongmu County in Henan Province queue. militia company from June 1978 to July 1983 high voltage electrical engineering from Qinghua University, specialized technology and equipment Students from July 1983 to August 1984 committee head of the Organization Department of Qinghua University in August 1984 July 1986 to ideological and political education in the Faculty of Social Sciences, Tsinghua University students in July 1986 to 19 March 88, the director of student While Section officer from March 1988 to September 1989 Qinghua deputy secretary of the Communist Youth League Committee of study from September 1989 to December 1993 committee of the Qinghua University. students, vice minister Students Deputy Director from December 1993 to December 1994 the Standing Committee of the CPC in 1994 in Chaoyang district party committee December 2000 to January 2000 the Standing Committee of the CPC Chaoyang district party committee. Minister of the Propaganda Department from January 2000 to March 2002 the Standing Committee of the CPC Chaoyang district party committee. executive deputy head of the regional people's government from March 2002 to April 2002 Haidian District CPC Committee, deputy secretary of CPC. First Deputy Director of the Zhongguancun Science and Technology Park Management Committee)

First of all, my new website is up (thanks Clara), and it has my updated CV and some recent papers: http://faculty.wcas.northwestern.edu/~vsh853/

This just in--Wang Qishan may be the next party secretary of Guangdong Province, which means a likely entrance into the Politburo. And this means that....he could be China's next Premier!! What is happening now is decidedly weird and unexpected. First of all, we have seen no movement for Hu Jintao's key lieutenants, the two Li's (Li Keqiang, Li Yuanchao). What is in store for them? One can presume two central positions, but there is a limited supply of those. The other two positions that come with more or less automatic seats in the Politburo are now filled by people who are not members of the Hu faction: Xi Jinping to Shanghai and now Wang Qishan to Guangdong.

The recent appointments of Zhang Gaoli to Tianjin and Zhao Hongzhu to Zhejiang also make little sense for Hu. While Zhang is a long-time Jiang crony, Zhao worked closely with Zeng Qinghong in the Central Organization Department between 2000-2002. In Shandong, another important province, we see Li Jianguo, a long-time Li Ruihuan follower, taking the top position. Tianjin, Zhejiang, and Shandong are all economic powerhouses. Yet, the Youth League faction is not taking the top jobs.

I am afraid that Hu is not as powerful as we had thought him to be in the aftermath of the Shanghai corruption case. The recent appointment pattern lends credence to the hypothesis that Zeng Qinghong played a crucial role in the removal of Chen Liangyu from Shanghai. The main thing to watch for during the 17th PC is whether these Zeng Qinghong appointments are a price for his retirement or whether he will stay on despite these appointments. If it is the latter case, Hu Jintao will confront coordinated resistance from powerful local leaders in the next five years.

Troubleshooter to become Guangdong party boss-sources

By Benjamin Kang Lim

BEIJING, April 3 (Reuters) - Beijing's no-nonsense mayor, who
steered the city through the 2003 SARS crisis, is likely to be
named Communist Party boss of the booming southern province of
Guangdong, a hotbed of civil unrest, two sources said on Tuesday.

The appointment is part of a reshuffle of provincial leaders
ahead of the 17th Party Congress this autumn when President Hu
Jintao will further consolidate power and tap a next generation
of leaders.

The party is expected to name Wang Qishan, 58, a "princeling"
son-in-law of late vice premier Yao Yilin, as provincial party
boss of Guangdong soon to replace Zhang Dejiang, the sources with
ties to the leadership told Reuters, requesting anonymity.

Zhang, who sits on the party's 24-member decision-making
Politburo, is a candidate for promotion to vice premier.

"Wang Qishan will go to Guangdong and is a Politburo
candidate," one source said.

It was not immediately known who would replace him as mayor
of the capital little more than a year before it hosts the Summer
Olympics. Candidates include Wang Anshun, named last month as one
of the city's deputy party bosses, and Vice Mayor Ji Lin.

Wang Qishan, a former economist, is no newcomer to Guangdong.
As provincial vice-governor from 1998 to 2000, he oversaw a
clean-up of the troubled trust sector following the 1998 collapse
of Guangdong International Trust and Investment Corp.

A few years later, stung by global criticism that Beijing had
covered up the SARS outbreak and helped its spread around the
world, Chinese leaders turned to Wang to repair the city's image.

From serving as party boss of China's tiniest province, the
southern island of Hainan, Wang was parachuted into Beijing.

The previous mayor had been sacked for bungling the crisis --
the city's worst setback since the 1989 Tiananmen massacre. Now
Wang closed schools, gyms and theatres and urged people to stay
home as the health emergency raged.

Guangdong, neighbouring Hong Kong, has been plagued with
crises since Zhang, 60, took the helm there in 2002. The
province, with its 92 million population, accounted for about
one-eighth of China's economy last year and attracted some $10
billion in foreign direct investment.

In 2005, thugs terrorised the Guangdong village of Taishi,
where residents were petitioning to sack their elected village
chief, who they say is corrupt.

Then came violence in Dongzhou, where villagers say up to 20
may have died when police opened fire on protesters. The
government said three protesters were killed.

"Zhang Dejiang attended university in North Korea. This kind
of person is preposterous... Wang Qishan is much better. He is
experienced in dealing with the media and managing crises,"
political commentator and democracy campaigner Liu Xiaobo said.

Wang is a princeling, a term which refers to the children of
China's incumbent, retired or late leaders.

Another princeling, Xi Jinping, was named party boss of
Shanghai last month, replacing Chen Lianyu who was ousted over a
social security fund scandal.

Wang was president of China Construction Bank, one of the
country's four big state banks, from 1996 to 1997 and minister of
economic restructuring from 2000 to 2002.