Intent Declared Summary
Oxford Analytica (OA), in its 2006 Report on Monetary Policy Transparency, rates China's overall compliance with this standard as "Intent Declared." This report represents the latest and to date only available comprehensive third-party assessment of China’s compliance with the International Monetary Fund’s (IMF) Code of Good Practices on Transparency in Monetary and Financial Policies. The OA report notes that, in 2006, the People's Bank of China (PBC) took several steps to boost the transparency and flexibility of its monetary policy. As a result, according to the OA report, the credibility of the PBC has increased considerably since. One example of such improvements is the PBC's installation in 2006 of a market-maker system in the spot trading of foreign exchange to allow markets to have a greater influence on the currency. This action is part of a larger July 2005 reform of the exchange rate regime, which is designed to assist the PBC in conducting a more effective monetary policy. However, the OA report notes that the pace of this reform has been very gradual. China's monetary policy framework enumerates the principal objectives of the PBC, and specifies the PBC's duties as overseer of the day-to-day handling of monetary policy. However, the OA report points out that, while the PBC has been recently afforded increasing autonomy regarding the use of monetary instruments, it is not independent from the government, and does not have final authority over key policy decisions. All PBC decisions are ultimately subject to macroeconomic policies set by the Communist Party, the Ministry of Finance, and the National Development and Reform Commission. Nevertheless, the OA notes that the PBC has significantly increased its communications efforts, thus making the process of formulating and reporting monetary policy decisions more open.
General Overview
According to Oxford Analytica's (OA) 2006 Report on Monetary Policy Transparency, China's monetary policy framework is officially set out in the Law on the People's Bank of China, Decree No. 46, of 1995 (PBC Law), which enumerates the principal objectives of the People's Bank of China (PBC), and specifies the PBC's duties as overseer of the day-to-day handling of monetary policy. However, the OA report points out that, while the PBC has been afforded increasing autonomy regarding the use of monetary instruments, it "is not independent from the government, and does not have final authority over key policy decisions, including interest rate and exchange rate policy" (p. 58). For example, while the PBC is autonomous in making decisions on open market operations, the State Council sets interest rates and exchange rate policy. Furthermore, all PBC decisions are ultimately subject to macroeconomic policies set by the Communist Party, the Ministry of Finance (MoF), and the National Development and Reform Commission (NDRC).
The OA report notes that the PBC has significantly increased its communications efforts, thus making the process of formulating and reporting monetary policy decisions more open. The report adds that "[monetary] data are more accessible than they used to be, and there is a general perception that both the PBC and the MoF are keeping the media better informed on developments than previously" (p. 66). Regarding the framework, instruments and targets of monetary policy, the OA report observes that "the PBC seeks to achieve its monetary objectives by attaining publicly disclosed money supply targets" (p. 64), adding that "the PBC is becoming more open and consistent with regard to its targets" (p. 66). Furthermore, the OA report warns that the lack of discretion afforded the PBC in setting interest rates impedes prompt and timely monetary policy action. To address this issue, the report recommends that China further interest rate liberalization.
Regarding the public availability of information on monetary policy, the OA report notes that, in 2002, China subscribed to the IMF General Data Dissemination System (GDDS), thus "marking a major step towards increased transparency in the reporting of economic data" (p. 68). According to the OA report, since the GDDS subscription in 2002, the PBC has published more detailed information in its Quarterly Statistics Bulletin due partly to the GDDS requirements for compiling monetary and financial statistics. However, the OA report highlights several shortcomings in China's central bank data regime. For example, the PBC does not make its profit and loss statements publicly available. Furthermore, information on expenses and revenues is not made available to the public domain, even though they are provided to the National People's Congress. The OA report also points out that, while a central bank balance sheet is published, it lacks detail. The balance sheet is posted on the PBC website.
The OA report states that the PBC Law requires the PBC to submit information on its monetary policy targets and financial supervision to the Standing Committee of the National People's Congress (NPC). The PBC Law also requires that summary versions of these reports be made available to the general public. Regarding external and internal auditing, the 2006 OA report observes that, even though its findings are not publicly available, the State Auditor conducts an audit of the PBC each year. Furthermore, the PBC's Internal Auditing Department audits the accounts of all PBC departments and PBC-supervised financial institutions.
In its 2006 Article IV Consultation, the IMF strongly recommends increased exchange rate flexibility for China, adding that "allowing the exchange rate to move more flexibly and be increasingly determined by market conditions would enhance monetary policy independence" (p. 28). The IMF concludes that this ultimately would help the PBC meet its monetary policy objectives. Additionally, the IMF urges the PBC to formalize its monetary policy framework, thus "establishing an appropriate nominal anchor for monetary policy, and more clearly articulating its policy objectives" (p. 15). The IMF states that doing so would help "underpin market expectations about inflation, interest rates, and the exchange rate" (p. 15). On a related note, the IMF views the PBC's now regular publication of the Monetary Policy Report as providing a solid source of information and thus increasing the transparency of monetary policy formulation.
According to the IMF’s 2009 Public Information Notice (PIN), China “has been hit hard by the global economic crisis,” leading to its lowest level of growth in a decade. However, China responded aggressively to the downturn, engaging in both fiscal and monetary expansion in order to counteract the sudden drop in world demand and private investment. The IMF supported these measures, and expresses tentative optimism that an economic recovery is underway. Looser monetary policy led to lower interest rates and reserve requirements, which in turn led to much-needed expanded lending in the first quarter of 2009. The 2009 PIN repeats the 2006 Article IV Consultation’s call for a more accurate valuation of the renminbi. While praising the foreign exchange policies of recent years for allowing a more market-based exchange rate, “some Directors nevertheless [support] the view that the renminbi remains substantially undervalued,” according to the PIN. These officials argue that a strong renminbi would rebalance the economy and allow monetary policy to better focus on price stability.
The Principles
IDClarity of roles, responsibilities and objectives of central banks.
In its 2006 report, Oxford Analytica rates China's compliance with this principle as "Intent Declared." According to the OA report, China's monetary policy framework is officially set out in the PBC Law, which enumerates the principal objectives of the PBC, and specifies the PBC's duties as overseer of the day-to-day handling of monetary policy. The roles, responsibilities and objectives of the central bank are clearly and comprehensively posted on the PBC website. The primary monetary policy goals of the PBC are to issue and safeguard the value of currency, and to maintain price and monetary stability.
Further, the report points out that, while the PBC has been afforded increasing autonomy regarding the use of monetary instruments, it is "not independent of the government in the administrative or operational sense" (p. 60). For example, while the PBC is autonomous in making decisions on open market operations, the State Council sets interest rates and exchange rate policy. Furthermore, all PBC decisions are ultimately subject to macroeconomic policies set by the Communist Party, the MoF, and the NDRC. One case indicating the PBC's increasing independence is the separation of banking supervision and monetary policy functions, which was facilitated by the creation of the China Banking Regulatory Commission (CBRC) in 2003. The OA report views this development as representing "significant change" (p. 61). Prior to this, all banking supervision powers were vested in the PBC.
In its 2006 Article IV Consultation report, the IMF strongly recommends increased exchange rate flexibility for China, adding that "allowing the exchange rate to move more flexibly and be increasingly determined by market conditions would enhance monetary policy independence" (p. 28). The IMF concludes that this ultimately would help the PBC meet its monetary policy objectives.
ENOpen process for formulating and reporting monetary policy decisions.
In its 2006 report, Oxford Analytica rates China's compliance with this principle as "Enacted." The OA report notes that the PBC has significantly increased its communications efforts, thus making the process of formulating and reporting monetary policy decisions more open. The report adds that "[monetary] data are more accessible than they used to be, and there is a general perception that both the PBC and the MoF are keeping the media better informed on developments than previously" (p. 66). Regarding the framework, instruments and targets of monetary policy, the OA report observes that "the PBC seeks to achieve its monetary objectives by attaining publicly disclosed money supply targets," adding that "the PBC is becoming more open and consistent with regard to its targets" (p. 64-66). Furthermore, the OA report warns that the lack of discretion afforded the PBC in setting interest rates impedes prompt and timely monetary policy action. To address this issue, the report recommends that China further interest rate liberalization.
Regarding public statements on monetary policy, the OA report states that the PBC's Monetary Policy Committee (MPC) reports monetary policy decisions through a variety of outlets. For example, the PBC provides the latest information on changes to monetary policy instruments in its many periodic publications, such as press releases, the Quarterly Monetary Policy Reports, and the Annual Monetary Policy Reports. The OA report views the quality of the quarterly and annual reports as "satisfactory, and that the information they contain, and their level of analysis, have sufficient depth" (p. 66). Furthermore, the MPC publishes all its decisions in the Beijing-based Financial Times and the PBC publishes a two-page quarterly report about the implementation of monetary policy in the Financial Times and other major Chinese newspapers. The Monetary Policy Reports are published in both English and Mandarin, and all are readily available on the PBC website. In addition to the proliferation of periodic publications, the MPC also regularly holds public hearings in the second week of the first month of every quarter. However, OA report observes the MPC's meeting times are set by verbal understanding and that the MPC does not publish an advance meeting schedule.
IDPublic availability of information on monetary policy.
In its 2006 report on monetary policy transparency, Oxford Analytica rates China's compliance with this principle as "Intent Declared." Regarding the availability of central bank data, the OA report notes that since the GDDS subscription in 2002, the PBC has published more detailed information in its Quarterly Statistics Bulletin due partly to the GDDS requirements for compiling monetary and financial statistics. The OA report also notes that the PBC has published more financial data on its official website, in its Annual Report, and in the Financial Times. However, the OA highlights several shortcomings in China's central bank data regime. For example, the PBC does not make its profit and loss statements publicly available. Furthermore, information on expenses and revenues is not made available to the public domain, even though they are provided to the National People's Congress. The OA report also points out that, while a central bank balance sheet is published, it lacks detail. The balance sheet is posted on the PBC website.
In regards to the provision of public information services, the OA report concludes that the PBC website "contains . . . comprehensive quantity and quality of information regarding monetary policy" (p. 69). Furthermore, according to the OA report, information on the Chinese and English version of the PBC website has been gradually increasing, and now includes speeches by the chairman and PBC-issued regulations. The PBC offers other public information services in addition to the website. For example, senior PBC officials appear in question-and-answer sessions published in the Financial Times and broadcast on the national China Central Television to explain the PBC's policies to the public.
According to the IMF’s 2009 report on technical assistance to China, during the period from 2003 to 2008 IMF officials held two technical assistance missions and additional training seminars for officials from the PBC, State Administration of Foreign Exchange, and the National Bureau of Statistics, among other organizations. The purpose of the missions was to assist Chinese authorities in improving their methodology for collecting monetary and financial statistics, metadata, and other figures. Chinese authorities deemed the technical assistance missions a success, and requested additional training sessions in the future to build on improvements made.
IDAccountability and assurances of integrity by the central bank.
Oxford Analytica, in its 2006 report on monetary policy transparency, rates China’s compliance with this principle as "Intent Declared." Regarding accountability before a designated public authority, the OA report states that the PBC Law requires the PBC to submit information on its monetary policy targets and financial supervision to the Standing Committee of the National People's Congress. The PBC Law also requires that summary versions of these reports be made available to the general public.
Pertaining to the proliferation of audited financial statements, the OA report notes that the Audit Bureau of the State Council publishes a report on government agencies, including the PBC, and the results are made available to the public. However, the report observes that "no independently audited PBC financial statement is disclosed" (p. 70). The OA report also highlights several inadequacies in this regard. For example, while the PBC publishes monthly balance sheets, it does not publish its profit-and-loss statements. Nevertheless, the OA report notes that the PBC is "working to remedy this problem, but until staff shortfalls are addressed, no significant improvements can be expected" (p. 70). Furthermore, although the PBC submits information on its expenses and revenues to the MoF and the NPC, this information is not publicly available.
Regarding external and internal auditing, the 2006 OA report observes that, even though its findings are not publicly available, the State Auditor conducts an audit of the PBC each year. Furthermore, the PBC's Internal Auditing Department audits the accounts of all PBC departments and PBC-supervised financial institutions.
