China will deepen the reforms in its financial sector, including quickening the steps of making yuan a convertible currency, to meet the demands of the country's modernization drive, according to Zhou Xiaochuan, governor of the People's Bank of China, the central bank.

"China will perfect the mechanism for forming the exchange rate of yuan to enable it to play a more prominent role in adjusting the economic development," Zhou said in a recent interview with Xinhua.

Efforts will be made to gradually lift the control over foreign exchange while maintaining a stable and reasonable exchange rate of yuan to bring about an international balance of revenue and expenditure, he said when explaining future financial reform specified in a decision approved at the Third Plenum of the 16th CPC Central Committee in October.

The renminbi is now only convertible under the current account and its exchange rate floats within a unified, managed regime based on market supply and demand of foreign exchange. Between 1994 and 1997, the exchange rate of the RMB against the US dollar appreciated from 8.7:1 to 8.3:1.

The interest rates of bank loans would also have more room for fluctuation in line with market supply and demand, he said, adding that the upper limits for loan interest rates would be gradually removed.

Zhou also elaborated on the reform of the state-owned commercial banks, saying that the reform has become urgent for China as the banks, which make up the major part of the country's financial industry, face a lot of financial problems.

Official statistics indicated that by the end of June this year, the big four state commercial banks had had the combined non-performing loans exceeding 2 trillion yuan (about US$240 billion), with the rate of non-performing loans as high as 22.2 percent.

Zhou also urged the improvement of the financial service system in the rural areas, saying that such reform was important to increase farmers' income and promote rural economy.

(Xinhua News Agency November 19, 2003)