THE decision by the Chinese Government to move towards convertibility of its currency on the current account has been well flagged. People's Bank of China governor Dai Xianglong has made no secret of his intention to launch the move sooner rather than later. When the plan was first foreshadowed, a target of 2000 was set for its implementation. This conservative estimate has allowed the government to steadily row back from this date and highlight each revision as a sign of sound economic management. Leaving aside the politics of the timing, the fact that China is now able to clear the way for convertibility of the currency for the purposes of trade, services, debt repayment and profit repatriation by the end of the year, is a significant achievement. It stands out as a milestone in the course of financial reform, and the relative speed with which it has been delivered underlines the eagerness of the government to accelerate the rate of change. In measuring the achievement, it should be recalled that less than two years ago the economy was racked with problems, which made action on the question of convertibility appear a distant hope. The whole process of economic reform appeared threatened in September 1994, when the inflation rate peaked at 25 per cent and international confidence sagged amid fears the government was loosing its grip on the economy. The doubters have been proven wrong. The government has tamed inflation and dragged it down to about 7 per cent. During the same period, foreign reserves have quadrupled and the currency has appreciated sharply, after taking into consideration inflation against the US dollar. Each of these is a substantial achievement, which has grown from the government's more measured, methodical approach to economic planning. The methods employed during the two-year long fight against inflation contrast sharply with the heavy handed attempts made a few years earlier, when inflation threatened to get out of control. This, in itself, has shown Beijing to be a more able and prudent economic manager. A more gradual, evolutionary approach to management of the economy has been seen in Beijing's progressive steps towards the achievement of convertibility on the current account, which culminated in last week's announcement. The prime example was a closely monitored series of experiments in four major cities where foreign companies were allowed to buy foreign exchange at authorised banks. On the back of this experiment's success, the government has eased into a position where the system can be extended nationwide, thus breaking down another barrier to trade in foreign currencies. Last week's announcement must also be seen as a strong signal of confidence from Beijing that it can reach its longer-term economic targets, and perhaps more importantly, that it is increasingly relaxed about capital inflows and outflows. The greater ease with which foreign companies will be able to repatriate profits as a result of the latest step will send the single most encouraging message to foreign investors. Foreign companies operating in China have well established methods of obtaining foreign exchange. However, there is nothing like formalising the practice to instill confidence in a country such as China, where concerns lingers among foreign investors about unexpected shifts in attitude to how business is conducted. Other aspects of the reform - debt repayment, trade and services - bring China closer in to line with many other apparently more advanced economies such as Taiwan and South Korea, and also simply makes doing business more efficient and transparent. Beyond its attraction to foreign investors, the move will be a stimulant to China's already strong foreign trade position. The government will also use the move domestically as an example of the benefit reform is bringing in terms of strengthening the currency and increasing China's international stature. The changes don't bring Chinese entry to the World Trade Organisation any closer because the reform satisfies none of the outstanding conditions which the United States and Europe are insisting upon. However, it has a symbolic importance, sending a clear message that the process of financial reform in China is being eagerly pursued. Full convertibility on the current account remains many years away but if the present rate of reform is maintained, it should not be too optimistic to expect it in about three years. This is when Taiwan and South Korea are expected to feel sufficiently confident to also put this last piece in place. This coincidence would be a major achievement for Beijing, given the head start both have had over China. The World Bank and International Monetary Fund gathering in Hong Kong next year, will no doubt be the venture for much clarification on the whole issue of currency convertibility in Asia.