For those seeking an update on today rumor du jour, here is Stratfor with some additional insights, if nothing definitive yet. But before we get into that, we have received the following update from our Chinese media readers across the Pacific: "Here is the link of the Ming Pao report. http://inews.mingpao.com/htm/INews/20100830/gb11502c.htm It says that "China may punish Zhou because China lost $430 billion foreign exchange on its Fannie and Freddie bond investment". It doesn't say anything about U.S. Treasury Bonds. The truth is that many Chinese thought China lost all its investment in Fannie and Freddie after they were delisted from NYSE. It is also wrong because China doesn't invest with their stocks." All in all, seems like lots of confusion pretty much everywhere, although the market is not taking any chances, with China's 1 Month Repo exploding by nearly 50%.
STRATFOR is continuing to examine unconfirmed rumors that Zhou Xiaochuan, governor of the People's Bank of China, fled China to the United States. The origin of the report has been hard to track, especially due to censorship of websites discussing the rumors, so the unconfirmed rumors remain just that -- unconfirmed. However, if true, these rumors could have significant implications for China and for Sino-U.S. relations.
STRATFOR is continuing to investigate unconfirmed rumors circulating in Chinese media to the effect that Zhou Xiaochuan, governor of the People's Bank of China, has fled China to the United States. At present there is still no confirmation.
The provenance of the rumor has proved hard to track. A report attributed to Hong Kong's Ming Pao newspaper on Aug. 28 said that Zhou might be punished for a large loss on U.S Treasury bonds worth $430 billion, and that the Chinese government might also punish others in the People's Bank of China. The report allegedly originated on an unknown but "major" Chinese discussion forum, and that forum suggested that Zhou had left the country. Ming Pao denied it had published the report Aug. 30, saying others had used Ming Pao's name without permission to distribute the rumor. STRATFOR has not yet been able to track down the original report, most likely because the Chinese government appears to be actively censoring websites discussing the rumors, deleting some web pages and blocking search engine results that involve Zhou's name and words relating to a possible defection. Rumors have continued to circulate on Chinese blogs and web forums, in particular suggesting that Zhou may have defected to the United States. The reports are still posted on the blog of a professor, Liu Bingfu, whose career experience suggests he is a notable, if minor, academic.
Zhou cannot be confirmed to have appeared in public since the rumors began. The official website of the People's Bank of China has reported on Zhou's activities Aug. 30 -- such as attending meetings with officials from Japan and Italy -- in what appears to be unusual coverage, including photos, and may be an attempt to counteract the rumors. The pictures were taken from a distance but do appear to show Zhou, though it cannot be confirmed whether the photos were in fact taken on Aug. 30. Zhou's last televised appearance was on Aug. 26 on CCTV, attending a conference with Chinese Premier Wen Jiabao, and images of the TV appearance also seem to show Zhou. Zhou had attended official events Aug. 10, in which he called for China to continue developing its western regions, and Aug. 3, when he met with his South Korean and Japanese counterparts.
Therefore what STRATFOR has at the moment remains unconfirmed rumors. If the reports are false, it would seem likely that Zhou will make a public appearance soon to dispel them. Otherwise speculation will continue. There are constantly rumors that high-level Chinese officials are in danger of a downfall, especially dealing with economic policymakers amid the economic challenges in recent years -- this year alone, such rumors have touched Wen and top banking regulator Liu Mingkang. Similarly, China has undertaken an extensive drive over the past year targeting corrupt officials, and a variant of the rumors about Zhou suggests he has disappeared from the public spotlight because he is under investigation for corruption.
What makes the rumors about Zhou more interesting, beyond his position as governor of the central bank, is the specific claim that he has defected to the United States. If true, this would have serious ramifications for domestic and foreign perceptions of China's political and financial stability, as well as for U.S.-Chinese relations. Though the rumors may prove false, their emergence alone likely suggests an attempt to detract from Zhou's reputation. This could be related to his economic policies -- while the rumor of a loss of $430 billion related to U.S. Treasury bills is difficult to comprehend without more context, China has recently adjusted its foreign exchange reserve management, or Zhou may have been targeted as part of the factional struggles ahead of leadership transition in 2012. However, it is relatively rare in China for political leaders to be punished for failed policies, and more likely the consequence of scandals, misconduct or political purges.