PBOC To Fill 4 Top Posts - 3 Economists and 1 Goldman Sachs Banker

Wednesday, March 31, 2010

Is China getting ready to tighten credit? In a most pragmatic move 3 rather hawkish economists have been added to the monetary policy committee of the People's Bank of China (PBOC), according to a report on chinadaily on Wednesday. The 3 academics replace leaving scholar Fan Gang, indicating that China may begin to tighten runaway credit rather sooner than later in a least painful way. Xia Bin, Li Daokui and Zhou Qiren are all on the record earlier this year, favoring a timely withdrawal of stimulus.
Goldman Sachs could gain the most advantageous position in the investment banking world
if leaving Goldman Sachs Asia senior partner Fred Hu will be nominated for the job of the vice governor, undisputedly a position of very high power. Chinadaily named the top banker in a report, citing unnamed sources:
High-profile dealmaker and Goldman Sachs top Asian executive Fred (Zuliu) Hu is likely to take up a senior post at China's central bank after formally stepping down from the Wall Street bank in April, people familiar with the matter said.
The appointment is still under final review by top policymakers, and a formal decision will be made in the next few months, the sources said.
Hu is seen as the right candidate for appointment as the vice-governor of the People's Bank of China (PBOC). His appointment is also part of the government's efforts to bring back the top 1,000 professionals working for Western firms to China to take up senior positions at State-owned enterprises and government departments, the sources said.
Besides the PBOC job, policymakers are also evaluating Hu as a candidate for a crucial position at one of the country's State-run lenders.
Though Hu was not immediately available for comments, the 47-year-old investment banker has been in the limelight in the past few weeks after Goldman Sachs said he was stepping down as partner.
Given his rich financial expertise and international exposure, there were reports that Hu would establish his own private equity firm or join his alma mater Tsinghua University as a professor.
Sources said Hu was still in talks with top government officials on his appointment. If it happens, Hu will be the first high-profile executive from a Western firm taking up a senior position with the government.
During his 13 years in Goldman, Hu spearheaded the multi-billion dollar public offerings of several Chinese lenders. In 2006, he made a $3.78 billion investment for Goldman in the Industrial and Commercial Bank of China (ICBC), now the world's largest lender by market value.
In 2004, Hu helped Bank of Communications, China's No 5 bank by assets, to sell a 20 percent stake to Europe's No 1 bank HSBC Holdings Plc.
Analysts said the move indicates a groundbreaking reform in the nation's selection of senior government officials. It also signals a departure from the tradition that Chinese officials should climb the management ladder gradually.
If Hu becomes vice governor, Goldman Sachs does not only have a foot in the door, but an insider in one the world's most important institutions.
The 3 scholars have all opted for a tightening on the horizon, Chinadaily recollects their latest speeches:
Going by their recent comments on inflation, with Li saying that China could precede the United States in raising the rates and Zhou urging a timely and firm exit from stimulus policies, it is speculated that their appointment may signal chances of an earlier rate hike.
Zhou said in a February speech that it was high time that China exited from the stimulus measures. "Given the past experiences, the stimulus through expanding money supply and debt only has a short-term effect," he said in the speech.
One of the side effects of the stimulus is rising inflation. "The price of the stimulus policies is mainly the adverse effect of the large-scale release of money on the overall market price situation," he said. "We have seen it on the market."
Li said early this month once China's consumer price index (CPI), a major measure of inflation, rises 3 percent, the country is set to increase the rates. China's CPI rose by 2.7 percent year-on-year in February.
He also said on Monday that China may suffer from exported inflation from developed economies as their continued relaxed monetary policy would lead to surging raw material prices and large-scale capital flowing into the emerging economies, including China.
Meanwhile, China should keep itself alert against possible price rises due to weather changes, such as the recent severe drought in southwestern regions.
Reading countless reports on droughts in China affecting more than 60 million people and threatening rice and grain harvests I am willing to lend China more than one ear when they talk about commodities inflation.
While the rest of the world envies China growth rates holding near the 10% level I still recommend to heed Mike Shedlock's warnings. He sees 10 signs of speculative mania in China and backs it up with more sobering facts. A faltering Chinese economy can become the straw that finally broke the world economy's back, leading to the inevitable Great Depression #2.

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