The bonds should be denominated in the Chinese currency and be used for organizations lending to Chinese enterprises.

The aim is to lessen exchange rate risks for the borrowers, Guo Shuqing, director-general of the State Administration of Foreign Exchange (SAFE), told the China Development Forum.

The move would be among a package of measures that the foreign exchange watchdog plans to take in its push to make renminbi (RMB) a hard currency.

The steps will also include a relaxation of restrictions over Chinese enterprises' investing activities overseas and allowing multinational companies operating in China to have more flexibility in using their idle assets in China, Guo said.

He said SAFE would also conduct research on measures such as permitting Chinese residents emigrating overseas to transfer their assets out of the country.

China's RMB is convertible only under the current account, which covers mainly the trading sector. It is not convertible under the capital account, which covers investment, borrowing, lending and assets transfer.

China has said that the full convertibility of the RMB is among the targets of its financial reform, but it will pursue the goal in a gradual manner.

Guo said they do not have a timetable and will make each move according to the situation at hand.

Financial market regulators last year announced their decision to open the country's capital market to qualified foreign institutional investors.

Guo said SAFE would also conduct research on the introduction of the qualified domestic institutional investor system, which would allow Chinese non-banking financial organizations to invest in overseas capital markets.

SAFE's decision to relax its restrictions over the RMB's capital account convertibility came at a time when holdings of the currency, as financial assets for enterprises and individuals, became more popular than ever.

According to Guo, Chinese people sold US$17 billion in US currency to Chinese banks last year, which represented a 200 per cent increase over the previous year. Also last year, the purchasing of foreign currencies declined by about 50 per cent, which led to a shrinking of the black market for foreign exchange.

Guo reiterated the financial authorities' intention to allow the RMB's exchange rate to fluctuate in a bigger band. But he did not say how wide the band would be.

He stressed that the currency could move in both directions if a wider fluctuating range was introduced.

"The renminbi moving in only one direction is impossible," Guo said.

(China Daily March 24, 2003)