Zhou Xiaochuan: China Is Facing A Dilemma In Raising Interest Rates.

Zhou Xiaochuan, the governor of the people's Bank of China (PBC), made a positive explanation for the first time last night after responding to the "pool" of hot money for 40 days.

On the evening of December 15th, when Zhou Xiaochuan answered questions at Peking University, he explained that the typical pool was foreign exchange reserve.

Yesterday, Zhou Xiaochuan, a senior economist at Xingye Bank, said that the central bank has been concerned about the fact that international capital is entering China at a low interest rate in the United States and other countries.

Once the Fed enters the stage of continued appreciation, China will face the risk of international capital outflow.

If we do not pay attention to this risk in advance, we may induce a currency crisis.

In fact, in China

Typical "pool"

In a public forum speech in November 5th, Zhou Xiaochuan put forward the concept of "pool" and said that in order to cope with the impact of the inflow of hot money on the real economy, China could take measures to hedge the total amount.

"Chi Zi" said that it led to speculation on the "pool", including deposit reserve ratio, open market operation, A share market, setting up international board and expanding the quota of qualified foreign institutional investors (QFII).

In November 12th, Ma Delun, deputy governor of the central bank, explained to the media for the first time in Shanghai from an official angle.

On the evening of December 15th, when Zhou Xiaochuan answered questions at Peking University, he explained that the "pool" of what he called hedging hot money was not as complex as the external interpretation. The typical "pool" is foreign exchange reserves.

Zhou Xiaochuan explained that foreign exchange reserves are divided into different sectors, some are to ensure import and export payments, some are foreign-funded enterprises to invest dividends, and the other is to allow hot money 100% to enter.

"Let the hot money 100% enter this part, and carry on 100% hedge, so that it will not have a negative impact on the economy in total."

Zhou Xiaochuan's explanation on foreign exchange reserves is classic "pool", which has aroused concern from all walks of life.

However, Shen Jianguang, the chief political officer of China's chief executive of Mizuho Securities and Mizuho Securities, said yesterday that Zhou Xiaochuan's position and his position in November 12th were actually two sides of one thing.

Zhou Xiaochuan explained from the constitution of broad money supply (M2), and Ma Delun's position focused on how to control the level of broad money supply.

According to Shen Jianguang analysis, in the balance sheet of the entire banking system (including the central bank), the broad money supply (M2) is roughly equal to the net assets abroad (mainly foreign exchange reserves) and domestic loans.

Zhou Xiaochuan's explanation in December 15th is that when hot money becomes part of foreign exchange reserves, it will not become a domestic loan increment.

In the case of broad money supply, foreign exchange reserves will increase and domestic loans will be relatively reduced.

Shen Jianguang also said that the foundation brought about by the increase in foreign exchange reserves.

Shen Jianguang further pointed out that the previous market participants' understanding of "Chi Zi" was analyzed from the aspect of controlling the broad money supply, that is, the liquidity was recovered through the deposit reserve ratio and the central bank's open market operation.

Dilemma {page_break}

Zhou Xiaochuan's "Chi Zi" theory triggered a heated debate in the society because of the rising consumer price index and the market's concern about the central bank's control of liquidity measures.

Since the central bank has raised the deposit reserve rate for the six time in 2010 this year, China's monetary policy is going underground under the dilemma of preventing inflation and ensuring growth.

According to reports, Zhou Xiaochuan accepted an exclusive interview with CCTV financial channel to talk about the development of China's capital market and the macro monetary policy next year. He also spoke frankly about the dilemma of the central bank in raising interest rates.

In the context of the United States once again opening up money printing machines and raising interest rates in many countries, facing the sensitive topic of raising interest rates, Zhou Xiaochuan said frankly, "most central banks' policy tools are in a dilemma. It is very difficult to make the tools of a few monetary policies in hand to satisfy all the different interest groups."

For example, Zhou Xiaochuan said, "take the exchange rate to understand that when the exchange rate rises, the exporters may complain that the importer says this may be good, that his things can be sold cheaper, and the market will be bigger, which has always been a trade-off."

An interesting detail is that when it comes to the pressure of work between Zhou Xiaochuan and Bernanke, Zhou Xiaochuan says his job is hard to do, and pressure Bibb Nanke is bigger.

Earlier, at the G20 Seoul summit in November, President Obama made it clear that the US quantitative easing policy was decided by the chairman of the Federal Reserve, Bernanke, not directly interfered by the White House.

Some media interpreted that Bernanke's power was greater than that of the Central Bank of China.

Zhou Xiaochuan explained that the contents and circumstances of central banks' management vary from country to country.

For example, the exchange rate problem is part of the central bank's monetary policy in China, but in the United States it is the work of the Ministry of finance. This is a system of establishment, not necessarily related to power.

Zhou Xiaochuan also said that most people have a deep understanding of their own difficulties, but they have difficulties in other people's work. Outsiders do not necessarily see it. Maybe they can see some material slowly afterwards.