China Shares Rise to 18-Month High on News Zhou Xiaochuan May Go

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PBOC Governor Has Continued to Press for Market Reforms

By

Shen Hong

SHANGHAI—China’s stock market rose to an 18-month high Thursday, while bonds remained steady after a recent rally, following a report by The Wall Street Journal that Beijing may replace its reform-minded central banker to pursue a more accommodative monetary policy to support a slowing economy.

The Wall Street Journal reported Wednesday that Zhou Xiaochuan, governor of the People’s Bank of China, who has in recent months continued to press for market reforms despite a slowing economy, may step down and be succeeded by Guo Shuqing, a former banker and top securities regulator who is governor of Shandong, a prosperous eastern province. Discussions about Mr. Zhou’s departure occur as the Chinese leadership has become more concerned that overhauls now will place another burden on an economy that is struggling to meet the government’s target of 7.5% annual growth.

The personnel shifts are expected around a major party conclave to be held in October, the officials said, while cautioning that no final decision about Mr. Zhou has been made.

Stocks and bonds in the world’s second-largest economy have rallied in recent weeks on signs the government will step-up support for the weakening economy, including targeted credit easing and a push for lower borrowing costs for businesses. However, the PBOC, under Mr. Zhou, has so far resisted the pressure to pursue outright monetary easing, such as cutting China’s policy interest rates or banks’ reserve requirements across the board.

“If the story turns out to be true, the authorities are trying to put in place someone who is more pliant toward (monetary) easing. Greater accommodation would mean lower interest rates across the yield curve,” said Tim Condon, economist at ING.

Mr. Condon said market chatters about Mr. Zhou’s departure were likely behind a decline in China’s onshore interest rate swap prices, financial derivatives that hedge against and reflect expectations for interest rate movements.

The benchmark one-year interest rate swaps are at 3.37%, down from 3.56% on Sep. 12 when the recent downtrend began.

The bond market painted a similar picture. The yield on the seven-year government bond has fallen to 4.02% from 4.21% on Sep. 12.

China’s stock market also extended a rally from Wednesday after Beijing’s move to cut the tax burden for companies spurred buying interest. The benchmark Shanghai Composite Index rose 0.3% to 2350.71 after touching an intraday high of 2359.80, the highest since March 1, 2013.

In Hong Kong, stocks were mixed in the morning session. The Hang Seng 0011.HK -0.16% Index was off 0.1%, while Hong Kong-listed mainland companies stocks fell 0.5%. Raw materials stocks, which could benefit from an infrastructure driven stimulus in China, were among the top gainers, up 0.8%.

“The economy is not doing well and the PBOC should have cut interest rates already. If the reported personnel change leads to lower interest rates, it will definitely help the stock market,” said Amy Lin, senior analyst at Capital Securities. 6005.TW -0.49%

Blue chips, including banks, property developers and infrastructure firms are expected to be beneficiaries of a more growth-supportive PBOC, analysts say.

Any change at the helm of the PBOC is unlikely to trigger major shifts in Beijing’s handling of its foreign exchange policy, which is often influenced not only by domestic economic conditions but also pressure from China’s trading partners, analysts say.

“It doesn’t sound like Beijing has a lot of problems with the PBOC’s management of foreign exchange. It’s mostly about providing liquidity and supporting growth,” Mr. Condon said.

—Gregor Hunter contributed to this article.

 

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