(1) Providing a stable financial environment.  In the early stage of reform and opening up to the rest of the world, the People's Bank of China reformed the exchange rate system in 1980, supporting the reform and opening up to take its first step.  Later in 1985 and 1988, in response to the economic over-heating and high inflation caused by the exorbitant investment and consumption, the People's Bank of China timely tightened money supply through its monetary and credit policy operations and restored the price stability.  Monetary policy at that period was aimed at the aggregate control and structural adjustment through a mixture of direct control and indirect adjustment with measures including reserve requirement, interest rates for deposits and loans, and the introduction of special deposits, etc.  During 1991-92, the People's Bank of China increased money supply to counter the slow down of economic growth.  The economy was quick back on track.  As the transition from the central planning economy to the market economy speeds up, the People's Bank of China has been resilient in adjusting its monetary and credit policy in line with the actual economic performance, aiming at price stability, maintaining macroeconomic stability, and supporting development and reform and opening up to the rest of the world.

(2) Supporting reforms in specific areas to achieve PI.  In 1994, China successfully reformed its foreign exchange system by adopting a system of buying and selling foreign exchange through designated banks and setting up a nationwide unified inter-bank foreign exchange market.  A unified, managed floating exchange rate regime based on market demand and supply was set up, the basis for achieving full convertibility of RMB was then established.  On December 1, 1996, China officially informed the International Monetary Fund of its acceptance of the obligations under the Article 8 (2), (3) and (4), removing all exchange controls over current account transactions, and realized the current account convertibility.  This marked another major breakthrough in China's foreign exchange system reform in response to the external sector development, the needs of attracting FDI and facilitating the integration of the Chinese economy with the world economy.

During 1993-96, the fast growth in localities, overheating in setting up development zones, excess investment in real estate and speculation in equity market resulted in early signs of economic bubble.  Against this background, the People's Bank of China, followed the strategic decision of the State Council, adopted an appropriate tight monetary policy and employed administrative and legal means to restore the financial order, control base money and credit aggregates.  As a result, the monetary and credit aggregates were effectively brought under control and RMB value was preserved.  In three years of rectification, adjustment and absorption, a soft landing of the economy was successfully achieved.

When the Asian financial crisis burst out in 1997, the currencies of China's neighboring countries depreciated by large margins, financial markets in the region as well as elsewhere were in turbulence.  At that juncture, China decided to maintain RMB value stable in line with its own reality and the overall interest of the international community.  The stability of RMB acted as an anchor in stabilizing regional financial markets and gained applause from the world.

Because of the increase in supply capacity in China, the excess supply of agriculture products and the decline in prices of agriculture goods has curbed the increase of farmers' income.  As a result, a slight deflationary phenomenon appeared in China during 2001-02.  The CPI was ?C0.4% in 2002.  With the adoption of the pro-active fiscal policy and sound monetary policy together with policies of developing the western regions of China, China was able not only to get rid of the impact of Asian financial crisis by increasing domestic demand in a relatively short period of time but also decrease deflationary pressure.  In the second half of 2002, the price level in China increased month by month.  The CPI in early 2003 became positive.

During the 20 years of reform and opening up to the rest of the world, the People's Bank of China also supported the development of capital market in China, the re-capitalization of the state owned commercial banks, and encouraged them to move forward to be share-holding commercial banks and to be publicly listed.  The individual housing ownership reform also enjoyed the support of the housing credit policy of the People's Bank of China.  These monetary policy measures have promoted the economic development and achieved significant PI result.  At the same time, the financial system reform and monetary policy operations have also made a giant leap forward through the process of reforms and opening up to the rest of world.

(3) Supporting structural adjustment.  Given the unique features of China's economic transition, the People's Bank of China also rendered its firm support to the economic structural adjustment through its monetary and credit policy.  Since 2000, the monetary and credit policy has, in cooperation with fiscal policy, been very supportive to the state strategy of developing the western regions of China; alleviating the difficulties of the state owned enterprise and helping restructuring of military enterprises; and reforming the grain distribution system in the later part of 1990s through the measures of re-lending, debt/equity swap, bad debts written off, etc.  The timely adjusting the real estate credit policy supported the housing system reform and curtailed real estate over-heating.  These policy measures have fulfilled their targets while the effectiveness of some policy measures may need to be reviewed further.

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