The Political Economy of Central Bank Independence in China: A Bureaucratic Competition Approach
Date Issued
2009
Date
2009
Author(s)
Zeng, Xiu-Lin
Abstract
This thesis attempts to expound the concept of central bank independence (CBI) in China. By using the bureaucratic competition approach, the writer tries to reconstruct the developmental path of the People’s Bank of China (PBC) in the financial reform era from 1993 to 2008. As the central bank in China, the PBC strives to increase the degrees of CBI to ensure the stability of financial system. While the PBC expands its political influence and improves the degrees of CBI, it must face the competition of financial policy with the Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC). By dividing the sixteen years into three periods, the raise of CBI in China is remarkable. In the first period (1993-1997), the PBC commenced to build and to strengthen the CBI. Through the enacted of the Law of the People’s Republic of China on the People’s Bank of China in 1995, the PBC separated from the financial control of MOF, and was confirmed to be the central bank of China in formal. The establishment of the three policy-oriented banks in 1994, freed the PBC from the burden of policy loans as well. In the second period (1998-2002), in order to get rid of the interference from local governments, the PBC reformed the inner organization to centralize the control of the PBC’s headquarter in Beijing, and laid the foundation to separate the regulatory function from the PBC. In the third period (2003-2008), when the China Government set up the China Banking Regulatory Commission (CBRC) in 2003, the PBC achieved the goal of separating the supervisory responsibility for the banking institutions, asset management companies (AMCs), trust and investment companies and other depository financial institutions. Furthermore, the Standing Committee of the Tenth National People''s Congress approved the amendment to the Law of the People''s Republic of China on the People''s Bank of China on December 27, 2003, which has strengthened the role of the PBC in making and implementation of monetary policy, in safeguarding the overall financial stability and in the provision of financial services. In the financial reform era from 1993 to 2008, the writer cites three instances which are the establishment of the three policy-oriented banks in 1994, the instituted of the four AMCs in 1999, and the founded of the Central Huijin Investment Ltd in 2003, to illustrate the conflict of supervisal policy between the PBC, MOF and NDRC. This article concludes that although the CBI in China has been improved since 1993, the PBC still lakes the autonomy to make monetary policy without the interference of the Central People’s Government of the People’s Republic of China. So the writer suggest that in order to improve the CBI in china, the PBC should have more independence on monetary policy making, and disclose more policy messages and statistics to promote the openness of policy. Once the CBI in China has been improved both in practical and in formal, the PBC, as the central bank in China, will have more ability to ensure the financial stability and promote the economic growth in China by making and implementing monetary policy independently.
Subjects
central bank independence
bureaucratic competition
inancial reform
division of regulatory function
monetary policy
SDGs
Type
thesis
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