After entering WTO, with the change of trade and investment China may have a even bigger change in international revenue and expenditure. We’ll continue to carry out the managing system of floating exchange rate. Under the conditions of remaining the value of RMB basically stable, we’ll further improve the mechanism of forming RMB exchange rate and strengthen coordination of interest rate policy in local and foreign currency. The exchange rate will play a good role in balance of international payments and in protecting itself from the attack of floating global capital.

　　Make RMB Steadily Become An Exchangeable Currency

　　After China’s WTO accession, its financial circles are now facing good opportunity and severe challenge as well in their development. China’s WTO agreements allow foreign banks to provide foreign currency business service for Chinese enterprises and Chinese residents since China enters WTO in 2001. Foreign banks are allowed to do RMB(Chinese local currency) business with Chinese firms in 2 years after China’s entry of WTO and with Chinese individuals in five years after China’s entry of WTO. Regarding the provided regions each year China must open some cities to foreign banks in RMB business service since entering WTO. Within 5 years there will be no limitation for foreign banks to conduct RMB business at any place in China. Refer to foreign banks setting up their branches the Central Bank will examine and approve them based on the principle of handling things carefully. In brief, within 5 years after China being a member of the WTO, foreign banks will have equal treatment with Chinese banks to legally run business and to equally compete with each other according to Chinese financial rules and regulations.

　　On one hand, since China entering WTO, more and more foreign financial institutions will participate in economic development and financial construction. All of this will benefit China in international capital increasing; it will be beneficial to our country in modern banking management system and new business variety; it will also raise our current financial service level so as to push forward banking reform and to promote the development of our financial circles. On the other hand, since China being a member of the WTO, more foreign financial institutions will entersintosChinese market and they will have a fierce competition with Chinese financial sectors in good quality customers, local talent, new business and new technology, etc. The new situation will also give a new pressure and challenge to the Chinese financial institutions in conducting business, to the Central Bank in working out currency policies and to the supervised authorities in supervision and management. Thus, China will further quicken its pace of commercialization of its domestic financial sectors, improve its money market, perfect its financial laws and rules , establish high-efficient financial monitoring system. It will pay close attention to the training of financial management personnel and try its best to push forward its technical means of financial management to a high level.

　　In the coming several years it will be the key period of Chinese financial circles in its reform and development. Our financial circles must promote China’s strategic restructuring in its national economic structure, they must basically resolve the financial risk which has been for many years and make full preparation for the challenge after China entering WTO. The task is very arduous. Therefore, People’s Bank of China must concentrate on the following major items of reform:

　　1) To have better understanding and raise our working efficiency in formulating and carrying out policies so as to create a good macro environment for national economic development.

　　2) To push forward the share reform of our state-owned commercial banks and to raise our banking sectors’capacity in competition. We have to speed up our reform pace of state-owned commercial banks, we’ll plan to take about 5 years or even longer time to change our 4 major state-operated commercial bankssintosthe modern, large-scale and competitive commercial banks in international financial market.Meanwhile, we must continue to standardize and develop share-holding commercial banks and support them in combination and rebuilding according to the marketing rules. We encourage foreign capital to buy shares in our share-holding commercial banks. We also need to accelerate the reform of our financial system in countryside and promote the development of trust companies, accounting firms and monetary leasing companies.

　　3) To further perfect the mechanism of forming RMB exchange rate and steadily push forward the procedure of RMB being exchangeable. In December of 1996 RMB could be exchanged under the routine business items. At the same time the income and expenses of capital were all registered or examined and approved. People were temporarily not allowed to pay foreign currency to purchase RMB security capital. What we did was not only to keep our economy making progress steadily but also to protect the interests of foreign investors. It proves that our step-by-step policy is correct in the opening of capital items. With the change of trade and investment there may be a bigger change in international revenue and expenditure after China entering WTO. We’ll continue to execute the managing system in floating exchange rate. Under the conditions of remaining the value of RMB basically stable we’ll further better the mechanism of forming RMB exchange rate and strengthen the coordination of interest rate policy in local and foreign currency. The exchange rate will play a good role in balance of international payments and in protecting itself from the attack of floating global capital.

　　This speech made by Mr. Dai Xiang-long, President of People’s Bank of China