According to a press release from the People's Bank of China yesterday, Zhou Xiaochuan also said the country will keep the value of its currency stable.

He made the remarks when addressing the annual International Bank of Settlements conference, which ended yesterday in Basel, Switzerland.

Zhou said SARS (severe acute respiratory syndrome) did not have a major impact on the Chinese economy as a whole, but did deal a hefty blow to several cities and industries. The effects will not last.

Although retail sales growth dropped in May, when the fear of SARS kept many people indoors, the growth of investment exports remained strong.

China's gross domestic product grew by 9.9 percent during the first quarter of the year.

Zhou's remarks about maintaining the value of the renminbi has dismissed speculation that the currency could be revalued higher.

But he said China will improve the forex rate's forming mechanism, which means the forex system has to become more flexible to allow market forces to have more of an influence on the yuan's value.

Zhou said China's exports and imports have generally been balanced since the beginning of the year.

China's forex reserves grew by US$30 billion during the first quarter to reach US$316 billion at the end of March.

Zhou said the increase of foreign exchange reserves was largely due to an influx of capital.

He said a lot of capital used to flow out of China even when the country tried to control the capital account.

But the situation has turned around, posing a new challenge to financial authorities.

The central bank press release said it's governors at the conference believe the prospects for a global economic recovery remain unclear and there is still a deflationary trend throughout the world.

They predict the United States economy will grow by 3 percent in the second half of the year and the Japanese economy will dilate by 1 percent during 2003.

(China Daily July 1, 2003)