The mainland would be more prudent in pursuing the full convertibility of the local currency, especially after the Asian crisis, according to the State Administration for Foreign Exchange. The administration's deputy director-general, Li Fuxian, said Beijing now considered it too risky and inappropriate to allow full convertibility of the yuan for capital-account transactions. Attending a conference in Hong Kong organised by the Trade Development Council, Mr Li said the Asian crisis had lifted the Chinese Government's awareness of risks inherent in large-scale cross-border fund flows. He said the central People's Bank of China and the administration were now putting the management of such risks at a very high priority to avoid the negative repercussions experienced by other Asian countries. Mr Li admitted the crisis had impaired the competitiveness of the mainland's exports and shrunk Southeast Asian countries' demand for mainland products. The deputy director was confident that this impact could be mitigated by taking remedial steps such as granting tariff waivers for import of manufacturing equipment by foreign-invested enterprises, and raising the level of tax rebate for exports. He insisted the mainland would not devalue the yuan for the sake of maintaining exports growth because exports comprised only 20 per cent of the country's gross domestic product. Mr Li said the Bank of China had from April 1996 started providing foreign-invested enterprises with yuan forward contract trading facilities to help them hedge against risks in volatility of the local currency. Forwards trading activities had been very low because the yuan was very stable over the past two years. He said the forwards trading should be initiated by genuine commercial demand rather than investment or speculative interests.
