Bernanke Questions China's Transparency

In a new blog post, former Fed Chair Ben Bernanke discussed China’s efforts to expand the transparency of its economics. Bernanke complemented the emerging market leaders on their increasingly clear explanations of their major policy initiatives. However, Bernanke sees two areas in which China still has a long way to go in terms of transparency.

Room For Improvement

First, Bernanke believes that China needs to have greater transparency when it comes to its economic data. “There is a lively debate in the academic literature about the quality of key Chinese data,” he wrote.

Bernanke argued that the lack of independence and transparency of China’s National Bureau of Statistics and other data providers are at the heart of much of the global skepticism.

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In addition, Bernanke believes clear and predictable market regulations are another area in which China can improve its transparency. “In general, the absence of clear and transparent rules and policies—in financial markets, as well as for activities such as commerce, capital investment, and trade—is a major problem because it dissuades participation, adds uncertainty, and can even foster corruption,” he noted.

Bernanke mentioned the government’s 2015 decisions to limit margin borrowing, suspend IPOs, allow trading halts and limit short selling as examples of this type of unpredictable behavior.

“Data transparency provides investors, the public, and even Chinese policymakers greater confidence about the state of the economy, and transparency about the rules of the game is critical for the economy and for financial markets,” Bernanke concluded.

So far in 2016, the iShares FTSE/Xinhua China 25 Index (ETF) (NYSE: FXI) is down 9.3 percent, while the SPDR S&P 500 ETF Trust (NYSE: SPY) is down just 2.2 percent.

Disclosure: The author holds no position in the stocks mentioned.

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