Chinese officials readily admit that communication has not been their strong point when it comes to dealing with international investors. The question of how China manages the renminbi is critical for global trade and commodity prices; the market turmoil following recent changes in the currency regime was exacerbated by Beijing’s failure to explain its intentions. Policymakers have now made it explicit that they have no wish to engineer a big devaluation. However, they are much less forthcoming about how they plan to reconcile a desire for currency stability with the realities of capital flight and a slowing economy.
Greater clarity would be a help to investors, who struggle at present to interpret cryptic press releases and gauge the extent of central bank intervention in markets. However, improving communication by the People’s Bank of China is not an easy matter. In a system where even the central bank governor cannot speak with complete authority — given political constraints and resistance to its reformist policies in other parts of the Chinese state — it would constitute a revolution.
Moreover, central bank guidance is most effective when the policy is clear and it is relatively straightforward to work out how it will evolve in response to changes in economic data. At present, the reality in China is that the PBoC has no clear course of action and wants to leave itself flexibility.