How does China’s Monetary Policy Committee influence monetary policies? - A brief history (2)

In April 2003, the State Council decided to restructure the Monetary Policy Committee and the new committee was composed of 13 people: the PBC’s Governor and two Deputy Governors, a Deputy Secretary-General of the State Council, a Vice Minister of the NDRC, a Vice Finance Minister, the Administrator of the SAFE, the Chairman of China Banking Regulatory Commission (CBRC), the Chairman of China Securities Regulatory Commission, the Chairman of China Insurance Regulatory Commission (CIRC), the Commissioner of National Bureau of Statistics (NBS), the President of the China Banking Association (CBA) and an expert from the academia. Vice Secretary General of the State Council and the CBRC Chairman were added into the committee, while the National Economic &Commerce Committee was removed. The chairman of big four banks no longer sits in the committee, but the head of China Banking Association is usually the chairman of a big bank. After Fan Gang quitted as the academia adviser of the MPC in 2010, 3 scholars joined the committee which made it a total of 15 people.

Generally speaking, there is no fixed term for the committee members except the academia advisors who have 2-year term with reappointment possible. The rest of members are all government officials and they usually sit in the committee until their terms in the government expire. The government term is 5-year with reappointment. They can also stay in the committee if they move to another department which has a seat in the MPC. For example, the CBRC Chairman Shang Fulin has stayed in the MPC for 12 years with four roles in government ministries.  

Table 2  Monetary Policy Committee (2003.4-current)

Monetary policy bias

The table below lists the members of this committee with their policy biases based on their public comments, as the voting result was not known to the public. A “hawkish” bias implies a preference for tight monetary policy, weighing the risks of inflation as greater than the upside of stimulated growth.  Also in China’s special case it suggests a more radically attitude towards the economic reform measures, including interest rate liberalization and exchange rate policy reform. A “dovish “voter has a tendency to prefer accommodative monetary policy, supporting the use of policy tools to stimulate growth while placing less emphasis on the risks of inflation. Also it suggests a conservative attitude towards the interest rate liberalization and exchange rate policy reform.  However, the MPC of the PBOC has a major difference from the Monetary Policy Committee of the Bank of England and the Federal Open Markets Committee, as it only advises on monetary policy rather than determines it. Above the monetary policy committee and the PBOC, the State Council has the ultimate power to decide the substantial monetary policy measures. Premier Wen Jiabao, Vice Premier Li Keqiang and Wang Qishan are believed to be the key decision makers. So we put their policy stances in the table as well.

The current Monetary Policy Committee consists of members who actively make public speeches and have signaled their monetary policy biases, as well as members who rarely speak publicly and who policy biases are unclear. However, the members who are very active doing public speeches do not tend to have a larger impact on the policy decision or the market in China, which is also very different from the US. In the Federal Reserve Board of Governors, those with a clear policy bias tend to have a much larger impact on the market, as Chairman Bernanke and ex-Vice Chairman Donald L. Kohn were the most active members. The first reason is that the members who speak most actively are not key policy makers in China. The second reason is that the central bank officials love to surprise the market and they tried to make their policies unpredictable. So their public speeches do not always represent the policy direction.

The Monetary Policy Committee members can be divided into four groups. Premier Wen Jiabao, Vice-Premier Li Keqiang and Wang Qishan sit on top of them and they are the final decision makers. Both Wen and Wang tend to have dovish stance on monetary policy while Li’s view is regarded as neutral but slightly hawkish. We will not discuss it in details due to the topic of this piece. 

Table 3: Policy bias scale

Chen Long

Central Banking Seminar