zhou xiaochuan : people ’ s bank of china governor ’ s new year message new year message by mr zhou xiaochuan, governor of the people ’ s bank of china, 7 january 2015. * * * the last day of 2014 is about to leave us and we will soon see the first light of 2015. at this juncture, i would like to convey, on behalf of the pbc cpc committee, new year ’ s greetings to all the staff members of the pbc system and sincere gratitude to those who are still on their duty positions on the new year holiday and their family members. in 2014, we continued our endeavor on the road of reform and innovation. in the complex and changing international environment and facing the arduous domestic task of reform, development and stability, under the leadership of the cpc central committee and the state council, the pbc continued the approach of seeking progress while maintaining stability, reform and innovation and achieved remarkable results in the various fields of central bank functions. we continued to implement a sound monetary policy, maintained policy continuity and stability, made innovations in the approach of macro - economic management, and conducted pre - emptive adjustment and fine - tuning. as a result, the growth of money, credit and all - system financing aggregate remained reasonable and the credit structure continued to improve, contributing to the stable and sound development of the economy. breakthroughs were made in the key financial reforms including market - based interest rate reform, exchange rate regime reform, and deposit insurance scheme, and policy financial institutions made new progress in their reforms. we have seen faster pace in the innovation of financial markets and a stronger role of financial sector in servicing the real sector. the cross - border use of rmb has been expanding. the reform of foreign exchange administration has been deepening. the management of financial risks has been effective. the quality and management of financial services have improved. we have actively participated a wide range of international and regional financial cooperation. the party ’ s mass line education and practice endeavor has produced results. the pbc has further improved its party building, style of work and internal management. the year 2015 is a crucial year for the deepening of reform as it is the first year of comprehensively promoting rule of law and the concluding year of the 12th five - year plan. the pbc system will earnestly implement the decisions adopted at the 18th cpc national congress, the third and fourth plenums of the 18th cpc central committee, and the central economic

monetary policy transmission should also look at the game between macro adjustment and micro agencies. the decision - making process and policy implementation have always been a game between macro adjustment and micro agencies. “ when there is a policy, there are countermeasures to circumvent the policy ” would be a vivid description of this game relation. monetary policy transmission and its effectiveness are no exception. any information structures and monetary policy conduct models will affect the monetary policy transmission. for instance, market can often find ways to preempt a monetary policy measure or sterilize its effects through ex post actions. changes in the asset portfolio can help evade policy restrictions. an excellent example would be the textbook version of how micro agency could minimize the effects of official reserve requirement. in a transition economy, political bargaining and lobbying for “ exemption ” should be guarded against. in the transition process, due to difference of regions and sectors, to a policy that would have been applicable across the board, there will be large number of applications for “ exemption ”. in the financial sector, since quite a number of financial institutions have a variety of policy lendings as a historical legacy, any restrictive policy may arouse one - to - one bargaining and dampen the monetary policy effects. for instance, central bank lending was originally designed to provide short - term liquidity assistance, but evolved to be persistently abused for all sorts of reasons. when a change in central bank lending rate is called for, there will be bargaining for exemption. the floating lending rate recently adopted by the central bank was to curb the one - to - one bargaining bahavior in principle. otherwise, central bank lending rate as a monetary policy instrument will fail in the transmission. iv. the study of monetary policy transmission mechanism should care about incentive mechanism. for an extended period of time, no sufficient importance has been attached to incentives. the current situation in china is that banks with good or bad performance have little difference in terms of rewards. in order for policies to be effective, positive incentives must be put in place to break the old system of “ eating from the same big pot ”, and “ same reward for good and bad performers ”. the phenomena of the “ subsidizing the lean by exploiting the strong ” or “ the fast oxen get whipped “ should be guarded against. distorted incentives will not only bring down a good bank, but also result in “ adverse selection ” and “ moral hazards ”. there are ample examples in the financial sector