The People's Bank of China (PBOC) has indicated a prolonged slowdown in exports and foreign exchange reserves will be a consequence of the September 11 terrorist attacks in the United States. The central bank warned that foreign exchange rates and interest rates would be under mounting pressure to adjust downwards, the Beijing Youth Daily reported yesterday. However the bank is optimistic foreign investment will pick up because China remains one of the few bright spots in the global economic landscape. It is the first time the mainland has released such a candid study since the attacks, signalling the impact on the Chinese economy was more extensive than analysts expected. The study, part of a third-quarter report drafted by the bank's monetary policy committee, was made public yesterday. The newspaper did not provide details on how the attacks had already hurt China's economic and financial system, or Beijing's preparations to minimise or counterbalance the effects. Central bank officials contacted by telephone declined to elaborate or comment on the analysis. According to the bank, mainland exports were expected to slow down sharply in the first half next year as a result of the attacks. 'Because this event will not only accelerate the advent of the economic recession in the United States, but it is also likely to prolong the present American economic cycle and deepen the recession,' Beijing Youth Daily reported, quoting the study. 'This will lengthen the time of the impact of a US economic slump on our exports.' As a result, the bank said, growth in foreign exchange reserves was expected to slow. It indicated that as mainland imports of crude oil increased this would cut into the country's foreign exchange reserves. By the end of last month hard currency reserves had soared past US$200 billion. The bank expects the US dollar to weaken against other currencies. The yuan is also expected to weaken against other currencies - in a range of between 5 per cent and 10 per cent. These fluctuations were much bigger than estimated before September 11. As major industrialised countries had indicated they would relax money supply and pump more liquidity into their economies, the mainland's interest-rate regime would be under increasing pressure to adjust downwards, the bank said.