PBoC improves policy communication

China’s central bank appears to be trying to improve its credibility and transparency by providing more timely information. Recent action includes a revamp of the English website and an increasing number of interviews with official newspapers.

The People’s Bank of China (PBoC) overhauled the English version of its website this month. It now publishes press releases and other information simultaneously with the Chinese version.

From the beginning of this year, the central bank has also been more outspoken and responsive in conveying its monetary policies, and answering questions from the market, observers said.

“The Chinese central bank is no longer as cold as it used to be,” says Zhou Hao, senior emerging markets economist at Commerzbank. “The market needs to rethink the stereotype it has on the PBoC.”

The central bank surprised macro analysts and economists when it responded to Chinese premier Li Keqiang’s questions about arbitrage behaviour in the interest rate market in February, as financial statistics that month showed a spike in bills financing.

“The direct interaction, or what appears to be friction, between China’s State Council and the central bank was rarely seen in the past,” Zhou tells Central Banking.

The PBoC rejected Premier Li’s hypothesis that the surging bills financing in China’s banking system was caused by arbitrage, which takes advantage of the country’s dual-track interest rate policy and is closely related to shadow banking.

Now it seems the central bank knows what the market is worried about and directly addresses the concerns

Zhou Hao, Commerzbank

“There are only a few companies who profited from arbitraging the gap between the interest rates of short-term bills and structured deposits,” an unnamed source from the PBoC told Financial News, the PBoC’s official newspaper.

The central bank’s style of communication has also changed substantially, according to Zhou. “Before the press conference, minutes appeared to be scripted and did not really provide much new information. Now it seems the central bank knows what the market is worried about and directly addresses the concerns.”

Such improvements are popular among analysts and other market participants, as the PBoC increases transparency in its policy-making process, reducing costs for financial institutions and the broader market in obtaining relevant information for making decisions, according to Zhou.

“It will also increase the central bank’s credibility,” he says. “There will be more reliable information to make forecasts.”

PBoC governor Yi Gang admitted the yuan has been facing downward pressure in recent years during his first press conference at the People’s Congress on March 10. When asked about interest rate negotiations during the US-China trade talks, Yi admitted the topic was indeed brought up by trade representatives and he reiterated that “China will not engage in competitive devaluation”.

“The central bank rarely admits that [the] yuan is under pressure to depreciate,” says Zhou. “It’s a smart move, both addressing concerns of the market while reiterating China’s stance on exchange rates.”

Alfred Schipke, the International Monetary Fund’s senior resident representative for China, says the PBoC’s efforts are very positive developments and will help make its policies more effective.

“Improvements in monetary policy communication can reduce financial market volatility and improve the effectiveness of monetary policies,” he tells Central Banking.

Revamped English website

The PBoC could improve its communications by increasing the volume of material it produces in English and publishing these materials simultaneously with the Chinese versions, a member of its international department told Central Banking in January. As of March, it appears to have completed this objective, translating most of the materials from Chinese into English and publishing press conference minutes at the same time as their Chinese versions.

Previously, only about 5% of the PBoC’s website was in English, according to Gene Ma, chief economist for China at the Institute of International Finance (IIF).

The new English website will help make China’s financial market more attractive to international investors, says the IMF’s Schipke, who co-authored a working paper in November 2018, arguing the Chinese central bank should improve its communications as China continues to liberalise its financial system.

“Given China’s large global footprint, policy-makers and investors are increasing looking for news about changes in China’s monetary policy, as well as such policies’ framework,” says Schipke. “Communicating in a timely manner and accessibility in English will be well received globally.”