Zhou, who took over as People's Bank of China governor last month, told a banking working conference in Beijing on Friday, "We will uphold the current foreign exchange rate system and improve the exchange rate formation system with the prerequisite of maintaining the stability of renminbi's exchange rate.''

His remarks, made public Sunday through a bank press release, were a clear response to the debate that has been going on since last year on whether the renminbi is undervalued or overvalued.

China's current foreign exchange rate system is called a "managed floating rate system,'' which means the exchange rate is based on the supply and demand in the foreign exchange market in Shanghai, but the central bank can influence the market by its selling or buying activities.

The renminbi's value remained stable during the 1997-1999 Asian financial crisis.

Chinese officials and economists have said they believe the current exchange rate is reasonable and a stable renminbi is in the best interests of both China and the global economy.

Zhou said the central bank's approach to foreign exchange administration will be improved.

The central bank will strengthen its analysis, monitoring and research on China's international payments, he said.

The foreign exchange authorities will also support overseas investment by internationally competitive Chinese enterprises.

"We will encourage such enterprises to go out,'' Zhou said.

The administration of companies' foreign borrowing activities will also be streamlined, he said.

Zhou also told the conference the central bank will stick to its prudent monetary policy to lend its support to rapid and healthy economic growth.

He offered his predictions of money supply growth rates for 2003, stating that both the broad M1 and narrow M2 are expected to expand by around 16 per cent this year.

M1 and M2 are key official barometers for money supply. M1, which covers cash in circulation and institutional demand deposits, and all sorts of deposits, grew 16.82 per cent last year. M2, which covers cash in circulation and all sorts of deposits, grew 16.78 last year.

Zhou said the central bank would begin to draft its plan for interest rate liberalization, a key part of China's financial reform.

"We will push forward the reform of the interest rate administration system at a steady pace,'' he said.

Zhou singled out credits for real estate projects when talking about commercial banks' business.

He said the central bank would urge commercial banks to improve their risk management in this sector.

(People's Daily January 27, 2003)