China to Tighten Foreign-Exchange Management to Fight Crisis

By Zhao Yidi

Oct. 26 (Bloomberg) -- China will tighten management of cross-border capital flows to prevent disruptions amid the global financial crisis, the nation's central banker said.

The government shouldn't underestimate the impact the crisis is having on China's economy, Zhou Xiaochuan, governor of the People's Bank of China, said in a report, delivered today to the nation's lawmakers, according to the official China News Service.

China can ``effectively defend against the impact coming from overseas,'' Zhou said, citing a ``solid'' overall economic outlook and stronger domestic financial institutions, as well as ample liquidity in the market.

Global economic slowdown will affect China's exports because reliance on overseas markets remains relatively high, Zhou said. The inflation trend may reverse or repeat its patterns in the future, Zhou said in his report.

The central bank will strengthen foreign-exchange management and improve its overseas investment system, Zhou said. China will use interest-rate tools to stabilize market expectations and keep its currency stable.

The People's Bank aims to guarantee sufficient liquidity in the market and to use open-market operations and reserve- requirement ratios to keep the banking system's liquidity at a ``reasonable level,'' according to the report.

Zhou vowed to facilitate a stable real estate credit market, while guiding commercial banks to adjust risk in the industry.

China's inflation cooled in September to 4.6 percent, the slowest growth in more than a year.

To contact the reporter on this story: Zhao Yidi in Beijing at at yzhao7@bloomberg.net