China’s normally reclusive central bank chief Zhou Xiaochuan is an unusually prominent presence at the G20 finance ministers meeting in Shanghai, racing from seminar to news conference to spread positive messages about the world’s second-largest economy.
After months of silence, the governor of the People’s Bank of China (PBoC) wants investors to know that the yuan currency — also known as the renminbi (RMB) — will be stable despite the slowest growth in a quarter of a century.
“The fundamentals of China’s economy remain strong. There is no basis for persistent renminbi depreciation,” Zhou told a conference on Friday, before delivering a similar message half an hour later at a rare media briefing by the central bank, all after he gave respected business magazine Caixin a lengthy interview earlier this month.
Chinese officials are mounting an unprecedented charm offensive in an attempt to convince global investors that its economy and currency are healthy, but doubts over their message remain despite the public statements.
The drive comes after senior officials from around the world — among them IMF chief Christine Lagarde and US Treasury Secretary Jacob Lew — urged Chinese authorities to communicate better.
“China is ramping up public relations in what will be a difficult 2016,” China economist at IHS Global Insight, Brian Jackson, said in a research note.
“During the second half of 2015, a vacuum of public statements raised market uncertainty, which officials are now trying to fill, itself a positive development regardless of their exact messaging.”
A stock market slump and shock currency devaluation in mid-2015 raised worries about Beijing’s ability to avoid a hard landing.
Policymaking is secretive in the Communist-ruled country and state-backed media toe the party line, restricting the free flow of information that modern capital markets need, analysts say.
“It is important that they (Chinese officials) stick to the reform agenda that they have set out and that they communicate their policies clearly in a world that is very much anxious to know the reasons for actions that are taken,” US treasury chief Lew told reporters in Shanghai.
– Water and oil –
For an official who was appointed in 2002 but still speaks in public only a few times a year, Zhou seems to be everywhere at the G20 gathering, where 19 countries and the European Union are meeting to confront slowing global growth.
But at the opening ceremony, he waved off an invitation from Finance Minister Lou Jiwei to speak in public for what would have been the third time that day — causing watching journalists to burst into laughter.
The economic situation is more serious. China’s economy expanded an annual 6.9 percent in 2015, the slowest in 25 years. Its foreign exchange reserves have fallen to $3.2 trillion as nearly $200 billion flowed out of the country in December and January alone.
Zhou sought to explain: “It isn’t like an oil field with fixed reserves that won’t remain after you drain it. It’s like a reservoir with water coming in from upstream and flowing out downstream.”
But investors have been confused by seemingly contradictory statements that pledge to move towards greater exchange rate flexibility while at the same time promising the currency will remain “basically” stable.
“From the standpoint of currency market players, this is not a credible position,” Arthur Kroeber, head of research for Gavekal Dragonomics, told the same seminar that Zhou addressed.
– Botched communication –
Financial markets have regularly been confused and concerned by Chinese decisions.
In January, a “circuit-breaker” mechanism intended to reduce volatility on Chinese stock exchanges was abruptly withdrawn after it instead panicked investors and forced the bourses to close early twice in four days.
On Thursday the PBoC stopped allowing some banks to use lower reserve ratio requirements — the amount of funds they must put aside — helping to send the Shanghai stock market down more than six percent as the change acts against monetary stimulus.
The move was only confirmed when the PBoC sought to deny a Bloomberg News report on the issue — with a convoluted statement that disclosed some banks had their reserve requirements revised upwards.
Earlier this year, the PBoC suddenly stopped publishing foreign exchange statistics for financial institutions, data analysts have used to help gauge fund outflows. On Friday, the central bank said the figures could be “quite misleading”.
Despite the positive messages, analysts still forecast China’s economic growth will slow in 2016 from last year’s 6.9 percent, and the yuan will weaken further.
Chinese Premier Li Keqiang is expected to declare a lower growth target at next weekend’s opening of the National People’s Congress parliament, probably a range of 6.5-7.0 percent.
But Li sought to reassure G20 finance ministers and central bankers that his government is able to handle the situation.
“We have the confidence to handle the complex situation at home and abroad,” he told the opening ceremony.
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