The longest-serving leader of a central bank of a major world economy is not to be found in Europe, or North America, or Japan. It is a 65-year-old man named Zhou Xiaochuan who was recently reappointed to the job he has already held for a decade, namely governor of the People's Bank of China (PBOC). The surprise reappointment gives him a chance to finish the immense task on which he has labored for his adult life: no less than creating a modern financial system that can power China's booming economy forward without the crises, bubbles, and busts that have become all-too-regular features. And while he's at it, he will try to make the Chinese currency, the renminbi, as central to global commerce as the dollar is now and the pound was a century ago. And he will have to do it while exercising considerably less power than his counterparts at the world's other major central banks.
Zhou's tenure at the PBOC has coincided nicely with China's emergence as an economic power. When he took the helm of the central bank in 2002, China produced $1,135 worth of goods and services per person, in present-day dollars. By 2011, that figure had reached $5,445. Behind those numbers were hundreds of millions of people who could suddenly feed themselves reliably, endure less backbreaking work, and enjoy more of the comforts of the modern age than their parents' generation could have imagined. China passed Japan to become the world's second largest economy in 2010; it will almost certainly become the world's largest within a generation.
The work of the country's central bank, led by Zhou, has been a crucial if often overlooked part of that story, as it has helped maintain steady growth in a nation buffeted by global forces. But he has had less success in creating a financial system that can lay the ground for the next generation of growth, one in which capital flows to the businesses and projects that have the best prospects, not the best political connections. To maintain China's breakneck growth, Zhou and his successors must wrest power and influence away from the country's political leaders to build a financial system that takes full advantage of all the lessons Western central bankers have learned over the centuries. Yet they must ensure that the system they build suits a Chinese culture and economy that are quite different from those of the United States and Western Europe.
Created in 1948, the PBOC in its early decades wasn't China's central bank so much as its only bank, the state-owned financial institution responsible for making credit available to state-owned companies. In 1995, the institution was formally made the country's central bank in its modern form. Like its counterparts in most countries, the PBOC carries out a wide range of tasks for the Chinese government, including printing and circulating cash, executing the government's interest rate and foreign exchange policies, and backstopping banks. The trillions of dollars in reserves that the Chinese government holds to guard itself against ups and downs of the global economy are held in accounts at the PBOC.
But while the PBOC does many of the same jobs as central banks in the West, that doesn't mean it has the same power. In the Chinese system, the concept of an independent central banker -- the central-bank governor as an independent actor who can make whatever decisions he believes are best for the nation -- simply doesn't exist. Zhou and his predecessors were technicians, functionaries charged with carrying out the policy directives that come down from higher up. The seven members of the Politburo Standing Committee, led by Chinese paramount leader Hu Jintao (until late 2012) and now Xi Jinping (his successor), make the biggest decisions. Zhou had status as one of 35 members of the State Council, the administrative arm of the government. But his was only one voice, alongside those of officials representing many other interests -- manufacturing, agriculture, the military, and so on. Zhou is said to have briefed the State Council on the condition of the economy every two weeks and made recommendations as to whether interest rates should be raised or lowered. But the decisions are authorized by a small, more exclusive group within the State Council and, ultimately, the Standing Committee.
Even among people who devote their lives to studying Chinese policymaking -- analysts, diplomats, academics -- the details of how the central bank's decisions actually get made are murky. It is presumed that Zhou and PBOC staffers have at least some say. "I think they're part of the intellectual debate, but I don't think they're part of the power structure," said an academic with deep relationships within the PBOC. As a U.S. official experienced in dealing with China matters put it, a Chinese diplomat to Washington can learn more about how decisions are made at the highest levels of the U.S. government by reading a few days' worth of the New York Times and the Washington Post than a U.S. diplomat to Beijing can from years of assiduously cultivating government sources.
This secrecy has created an atmosphere of fevered speculation and even distrust around the PBOC. In August 2010, there was a strange rumor circulating in Asian financial circles and redistributed by the political analysis firm Stratfor: The PBOC had suffered massive losses on its portfolio of U.S. Treasury bonds and Zhou had defected to the United States to escape punishment from Chinese authorities. China dealt with the rumor by shutting down Web sites repeating it and publishing indications of support of Zhou in state-run media. It was all nonsense, but the absence of the kind of transparency that's standard in Western democracies means there are no reliable independent arbiters of fact. By contrast, when there was a rumor in financial markets that Alan Greenspan had been gravely injured in a car accident when he was Fed chair, his spokesman was able to shut it down by simply confirming to news services that Greenspan was sitting unhurt in his office.