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2. Deepened reforms in financial sector, enhanced competitiveness of financial industry and supported “going global” of enterprises

In 2010, with the gradual recovery of global economy, the foundation for recovery of the Chinese economy was strengthened and its performance more and more stable. The PBC took the opportunity and furthered key financial reforms.

Firstly, RMB exchange rate regime reform was furthered on the basis of market supply and demand and with reference to a basket of currencies. The RMB exchange rate moved within the announced band in inter-bank foreign exchange market, and remained relatively stable at an adaptive and equilibrium level. The RMB exchange rate against US dollar appreciated 3 percent in 2010 and 25 percent accumulatively since the start of exchange rate regime reform in 2005. As for the performance of the real economy, enterprises have gradually adapted to the post-reform environment. With the shocks of international financial crisis gradually easing, imports are undergoing strong growth, the structures of imports and exports and of export destinations are improved, and the trend of excessive growth of trade surplus is to some extent restrained, reducing inflation pressure. Export continues to grow fast. Enterprises’ ability to adapt to exchange rate fluctuations is evidently improved and the output, performance and employment of foreign trade industry are generally stable. In particular, performance of some labor-intensive enterprises has already exceeded their pre-crisis level. As various reform policies begin to take effect, the impact of exchange rate regime reform will further unfold in terms of facilitating trade structure adjustment, improving economic structure, upgrading industries and achieving sustainable development of the economy.

Secondly, the PBC continued to deepen reforms of large financial institutions. On July 15^th and 16^th 2010, the Agricultural Bank of China went public in Shanghai and Hong Kong, signaling the completion of joint-stock reform of large domestic commercial banks. The China Development Bank also changed from a policy bank to a joint-stock commercial bank. The reforms of the Export-Import Bank of China and China Export & Credit Insurance Corporation progressed steadily. Through reforms, the shareholding and governance structures of Chinese financial institutions are gradually improved. Their ways of operation and management are transformed, capital adequacy ratios and quality of capital are greatly improved, and profitability and risk control ability are significantly strengthened. In particular, China Development Bank and the Export-Import Bank of China have used various policy financing tools to support export of large assembly equipments and satisfy the financing needs of “going global” enterprises. China Export & Credit Insurance Corporation actively uses export credit insurance to enhance the confidence of export enterprises and support them to expand global market shares through flexible trade methods, which has significantly increased export competitiveness and enlarged scopes of trade.

Thirdly, the PBC deepened the reform of foreign exchange management system and facilitated trade and investment. In recent years, the PBC abolished cap management of current account foreign exchange accounts, launched the pilot overseas deposit of export receipt program, further simplified verification procedure of foreign exchange purchase and sale, and allowed multinational corporations to operate exchange rate capital internally within their group companies. It also gradually relaxed capital control and lifted the ceiling on foreign exchange purchase for foreign investment to support enterprises to “go global”.

Fourthly, the PBC enhanced the role of financial markets, quickened financial product innovation to satisfy capital needs of different fund raisers. In recent years, the PBC has endeavored to nurture and develop foreign exchange market. New trading tools like foreign currency pairs, RMB foreign exchange forward, RMB foreign exchange swap and RMB foreign exchange currency swap, etc. were launched to diversity trade and provide financial instruments for enterprises to manage foreign exchange and interest rate risk.

3.  Continue to promote financial reform and innovation and support the balanced and sustainable development of national economy.

The economic situations are still complex at home and abroad. Globally, although the turmoil caused by the financial crisis has gradually eased, and world economy is slowly recovering, the momentum of recovery is still fragile and there are a lot of destabilizing and uncertain factors. United States and other countries are implementing another round of quantitative easing monetary policy. The subsequent loose global liquidity will intensify the pressure of capital inflow, local currency appreciation, inflation and asset bubble in emerging markets. In particular, some countries are still faced with the potential risks of sovereign debt crisis, the global financial system remains fragile, and a large number of toxic assets are to be disposed of. At home, despite the favorable conditions to support fairly rapid growth, there are problems such as high inflation expectation, higher real estate prices in some large and medium cities and the continuous net inflow of foreign capital, in addition to the long-term and deep-rooted structural problems such as the imbalance of national economy, disequilibrium of the balance of payment, uneven development between urban and rural areas. Going forward, the task of macroeconomic management will be arduous; the PBC will follow the arrangements made at the central economic work conference and focus on the following aspects:

The first is to implement the prudent monetary policy, enhance macro-prudential regulation, strengthen the control on total liquidity so as to guide money and credit to grow at a reasonable rate and maintain reasonable size of total financing. Given the current international and domestic circumstances, it is the right choice for China to shift from a moderately ease monetary policy to a prudent one. This will help strengthen management of inflation expectations, prevent asset price bubbles, guide reasonable investment and consumption behavior, and provide stable monetary conditions for economic restructuring and more efficient resource allocation so as to prevent systemic financial risks. To implement the sound monetary policy, the PBC national working conference has made a detailed working plan, including the employment of various price and quantity-based instruments such as the interest rate, reserve requirement ratio and open market operation; the macro-prudential policy framework will be improved and monetary policy tools will be diversified to make the macro-control measures more flexible, targeted and effective. Price Stabilization will receive more priority; more efforts will be made to strike a balance among a sound and relatively rapid development, restructuring the economy and managing inflationary expectations. Meanwhile, it will step up the financial support to a shift in economic development pattern and the economic restructuring. Continuing the differentiated credit policy, the PBC will enhance the guidance of credit policies, optimize credit structure, and expand the financing channels of SMEs so as to enhance financial services and promote stable and rapid economic development.