Berita Terpopuler - Political Overlords Shackle China's Monetary Mandarins

BEIJING—China's premier, Wen Jiabao, warned last month that inflation is like a tiger—once unleashed, it is "very hard to cage again."

Amid growing worries over inflation in China, many question what the People's Bank of China can do to put on the brakes without dampening rapid economic growth. WSJ's Bob Davis explains to David Reilly the complications of adjusting policy in the country.

Yet Beijing has been slow to pounce, even though food prices are rising at a nearly 12% annual clip and overall inflation hit 5.4% in March, according to numbers released Friday, more than twice the pace of a year ago. The steps it has taken thus far, including last week's 0.25% interest-rate increase, have been modest.
If it had been solely up to the People's Bank of China, the nation's central bank, the inflation-busting would have begun sooner, according to people involved in the matter. But the process of fighting inflation here is Byzantine, much like the Chinese government itself.
Monetary policy in the world's second-largest economy involves dueling bureaucracies, secretive committees and a Communist Party whose influence is hidden but pervasive, these people say. No single official is in charge, making it nearly impossible for other leading nations to coordinate economic policy with China.
"Who is China's Bernanke?" asks Beijing economist Yu Yongding, a former central bank adviser, referring to Federal Reserve Chairman Ben Bernanke. "There isn't one. Important decisions are made collectively. You can miss the best timing [to fight inflation] because decisions must be approved at a more senior level, and sometimes a go-ahead is given only after a long delay."

On Thursday, the central bank reported that lending by financial institutions had expanded more rapidly in March than in February, and much faster than analysts anticipated—another sign that inflation may be accelerating. Forty-four percent of 3,000 bankers surveyed by the central bank in March said the economy is overheating.
In most countries, controlling inflation falls to a central bank. China has the People's Bank of China, or PBOC, with a 63-year-old reformer, Zhou Xiaochuan, at the helm. But unlike the heads of the Fed, the European Central Bank and other major central banks, which are independent from politicians so they can take unpopular measures to thwart inflation, Mr. Zhou answers to China's political leaders.
 The PBOC, indeed, often doesn't know about monetary decisions until it is informed by higher-ups, Chinese officials say. It is just one of a dozen ministries that lobby top decision makers in the Chinese government and Communist Party about whether or not to raise interest rates or boost the value of the currency to fight inflation. The central bank often loses such battles to ministries that represent go-go exporters and free-spending local governments, say economists who track the process.
The laborious, politically charged process can delay decisions for months. China's central bank began pushing for tighter monetary policy around last June. But China didn't start its anti-inflation campaign in earnest until November, after inflation had hit a two-year high.
Some foreign treasuries and central banks privately express frustration that they can't coordinate policies with China. That is because the heads of China's central bank and finance ministry can't make binding decisions, and more influential officials aren't accessible—or may not even be known to foreign finance officials.
In October 2008, for instance, with the global financial system in extreme distress, the Fed, the Bank of England and the European Central Bank together agreed to cut interest rates. Chinese officials, who took no part in the consultations, cut rates soon thereafter, surprising Fed officials.
"It's inherent in the logic of an authoritarian country that you don't have a fully independent central bank," says former Obama White House economic chief Lawrence Summers.

In an effort to better understand Chinese policy-making, the Fed recently sent a senior researcher to Beijing for a month and invited a Chinese economist to spend time at the Fed.
Some Chinese officials say their system for managing the economy works fine. Li Daokui, a Tsinghua University economist and member of the central bank's monetary advisory committee, says the system is "necessary at this stage of economic development" because it helps build consensus for action among competing ministries that can use different tools to fight inflation. The planning ministry, for example, says it will pump up agricultural production and build low-income housing to fight food and housing inflation.
"The benefits of coordinating policy outweigh the cost of pursuing reckless monetary policy," which might happen if the PBOC were independent and made a mistaken call, Mr. Li argues.
Mr. Zhou, the PBOC's governor, has long sought to revamp China's economy so that it relies more on market forces. That has made him a favorite in the West, where he is viewed as something of an economic ambassador for China.
Mr. Summers, the former Obama adviser, says he felt comfortable enough with Mr. Zhou that when the two played a doubles tennis match in Beijing last September, they jokingly bet that the winner would set the U.S.-Chinese foreign-exchange rate. Mr. Summers lost and asked for a rematch.