CHINA'S central bank plans a more centralised operation to help it force through changes to the country's economy and banking system. People's Bank of China vice-governor Zhu Xiaohua said in Hongkong yesterday that the bank would cut back its operations at sub-provincial level and instead exercise control through large ''economic zones''. This would increase the bank's ability to make macro-economic changes and prevent regionalisation of its functions. Mr Zhu also plans to forestall interference in monetary policy through the creation of a monetary reform committee modelled on the open market committee of the United States' Federal Reserve system. The committee would include People's Bank bosses from each economic zone, enabling it to assess the impact of policy across the country. Mr Zhu said the bank should gradually develop open-market activities and a discount facility. Based on the discount rate, an interest rate structure reflecting market conditions would emerge. Open-market activities are commonly used in Western economies to influence liquidity. Mr Zhu said bank internal operation units would be reformed to reflect changing market circumstances. Reforms would be designed to improve the bank's ability to handle information from the financial markets promptly. Subsequent adjustments would be made through the markets themselves. Mr Zhu said the central bank would take a progressive approach to the commercialisation of the specialised banks. The accounts for policy lending and commercial lending should be separated. China's specialised banks have the dual role of providing commercial banking services and ensuring the survival of state-owned firms. Loans are often made to the latter regardless of their ability to repay. Mr Zhu suggested that a new group of banks that would solely provide ''policy loans'' - as opposed to commercial ones - be set up in one to two years' time. For funding these banks would rely mainly on cash from the Government and the issue of long-term bonds. Banks involved in commercial lending should aim to comply with standards laid down by the Basle Committee on banking supervision on, for instance, capital adequacy ratios. Mr Zhu said complying with such standards would enhance the integrity of the banks and help them compete internationally. He said a new tax system would be designed to lower the rate of tax for banks and enable them to accumulate profits. Banks would be required to make provisions against bad debts. Mr Zhu expected the opening up of the banking system to result in China's major banks establishing a presence in international financial centres and setting up networks in countries that traded with the mainland. Given that China was a developing economy, Mr Zhu said, high economic growth without inflation was impossible. A poorly developed market system meant effective adjustment techniques were not available. But the bank should not just stop at stabilising the currency. It should strive for high economic growth while keeping inflation under control.