CBRC’s Andrew Sheng talks about new era for policymaking

The global financial crisis has undermined much of the economic theory that influenced central banking in recent decades. Andrew Sheng, chief adviser to the China Banking Regulatory Commission, tells Claire Jones that this has significant consequences for policy-making

You have been saying of late that theory has failed you. What do you mean by that?

It is becoming increasingly clear that a lot of our micro and macro assumptions have turned out to be wrong. The most important problem is that a lot of our models have limiting assumptions that state that the market reverts to equilibrium. The theory is that negative feedback will propel the market back towards equilibrium. But, as we now know, the market actually has positive feedback.
With other failures of