Ex-PBOC Head Zhou Xiaochuan Shares Insights on Great Financial Crisis


The former head of the Chinese central bank has offered his insights into the 2008 Great Financial Crisis at a forum held in Beijing over the weekend.

Addressing the 2018 Tsinghua Wudaokou Global Financial Forum ( 2018清华五道口全球金融论坛) held from 19 – 20 May, recently retired head of the People’s Bank of China (PBOC) Zhou Xiaochuan said that he had reached two main conclusions with regard to the 2008 Great Financial Crisis.

The first conclusion is that the cause of the crisis was related to the emergence of certain activities and products on financial markets that had “diverged” from the real economy, in particular obscure derivatives products.

According to Zhou these activities and products failed to service the real economy, and were also highly susceptible to volatility.

Zhou’s second conclusion is that the “positive feedback” of economic and financial systems can be highly pronounced, which mean that stock prices rise when the economy is performing well, and ratings improve when earnings are strong.

Once problems arise, however, it quickly becomes a case of “kicking someone while their down,” which is a classic sign of positive feedback.

70-year old Zhou Xiaochuan vacated the office of PBOC governor earlier this year, after serving in the position since 2002.

At the 19th National Congress of the Chinese Communist Party held in October last year, Zhou also made reference to the potential for pro-cyclical factors to contribute to a financial crisis, warning that China was still vulnerable to a  “Minsky Moment crash.

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