Ahead of a meeting with his G20 counterparts in Shanghai today, China’s central bank governor broke his lengthy public speaking silence to assure the world: 1) exports are fine 2) capital outflows are mostly normal, and, most importantly, 3) China will not devalue its currency again like it did last August, sending markets into a tizzy and creating countless “global currency war” headlines.
There’s a lot of interest in what governor Zhou Xiaochuan has to say because the panic over China that began the year seems to have abated, but the fear remains that China may still be a couple wrong moves away from sparking economic chaos.
Zhou spoke at a press conference before the G20 meeting of finance minister and central bankers this Friday and Saturday in Shanghai, where China’s economy was expected to be the topic guests wouldn’t mind fighting jetlag to learn a bit more about. He said “China’s overall exports remain strong,” capital outflows remained “largely normal” and there was “no basis” for more declines for the yuan.
Zhou offered many of the same reassurances in an interview with the respected Chinese business magazine Caixin two weeks ago. That interview was his first since September. Observers have questioned if Zhou, a noted reformer and the longest-serving central bank head in the world’s twenty largest economies, has lost influence as China president Xi Jinping has centralized power in the government and more heavily emphasized state control over free markets. (See: China’s incursions into the stock market, the currency, new media regulations, a clampdown on dissident, and its bailouts of weak state-owned firms.) At the World Economic Forum in Davos this January, China sent one of Xi’s aides instead of Zhou or premier Li Keqiang.
Zhou’s appearance today was unavoidable, as the G20 was a meeting of central bankers. He said China had a lot more ammunition to help support its slowing economy, and the country’s budget deficit would grow this year with the spending. Qu Hongbin, HSBC’s chief China economist, scrutinizing Zhou’s comments, said today China’s monetary policy had shifted “slightly from ‘prudent policy’ to that with an ‘easing bias.’”
There appears to be some evidence traders have moved on, for now, from expecting soon-to-come crises in China. In answering why the 6% tumble in Shanghai stocks Thursday didn’t ripple across Western markets—in the U.S., stocks rose by more than one percent on the day—Julian Jessop of Capital Economics concluded that “the words and actions of the PBOC in keeping the renminbi broadly stable against a basket of currencies” have assuaged worries about a big Chinese currency devaluation and generally about a Chinese crisis.
Former Treasury Secretary Hank Paulson, also speaking before the start of the G-20 conference in Shanghai, cautioned against forming opinions on the yuan until it was clear how China was responding to its economy. “They know as well as anyone what the downsides and trade-offs are,” he said. “They are always adapting and learning.”
Zhou’s recent reappearance, to cast aside doubts, might be the latest proof.