SENIOR bankers in China have pledged to turn the national currency, the yuan, into a fully convertible unit in an effort to reverse an exodus of capital from the country. Zhou Xiaochuan, Vice-Governor of the central bank, the People's Bank of China, recently told the nation's bankers that full convertibility of the yuan had been given top priority by the leadership as reform reached a critical stage. But speaking on the same subject, Xu Bin, Deputy Director of the State Administration of Exchange Control (SAEC), stressed that full convertibility would be attempted only if the authorities were convinced it would not cause market disruption. And Mr Xu hinted that the authorities had no intention of changing the present exchange rate - US$1 to 8.7 yuan - and would not allow ''significant'' depreciation of the yuan even after it became fully convertible. But Mr Xu warned that the Government faced increasing difficulties in maintaining a stable foreign exchange market as China faced a huge foreign trade deficit, double-digit inflation and high interest rates. Although Mr Zhou did not give a specific target date for full convertibility, he said it was considered an essential step to reform. ''Full convertibility is not the goal of reform, but an indispensable step in achieving our ultimate goal of reform and opening [to the outside world],'' Mr Zhou said. ''Pledging to turn the yuan into a convertible currency helps to build up public confidence in our national currency,'' said Mr Zhou. ''[We also believe] full convertibility would not have a great impact on our national reserves.'' According to Mr Zhou, the Government was now inclined to adopt a two-step approach to turn the yuan into a fully convertible currency. The Government would first lift controls over servicing accounts such as those for trade and investment. Full convertibility in the marketplace would follow later. The latest remarks by senior bankers were seen by analysts as indications that reformist officials were keen to push ahead with controversial policies before the death of paramount leader Deng Xiaoping. Full convertibility of the yuan is also one of the conditions China has to fulfil for re-entry to the General Agreement on Tariffs and Trade. According to Vice-Governor Zhou, the Government understands that the conversion restriction does not help to stop money leaving the country. On the contrary, the restriction is a disincentive for China-funded businesses to remit profits home. He also cited a survey in the United States which showed that China had suffered a net outflow of capital into the US and much of the cash was being siphoned out of China through ''suspicious channels''. Quoting sources in Hong Kong, the Vice-Governor said it was believed a large number of China-funded companies had reinvested their profits in high-yield businesses in the territory to escape the foreign exchange controls imposed by the Beijing Government. He said there was no reason why China should suffer a net outflow of capital when the country's interest rates and rate of return on investment were both higher than those offered in most developed countries. In 1992, more than US$17 billion (HK$131.2 billion) of foreign money flowed into China, up 50 per cent on the previous year. Meanwhile, Mr Xu denied the authorities had intervened in the markets and claimed the stability in foreign exchange markets was the result of market forces. ''Not only has the SAEC not tried to support [the 8.7-yuan exchange rate] by buying in the markets, other departments have not intervened through administrative methods,'' he said. ''This is really an exchange rate [set by] the market.'' It was the consensus among foreign investors and bankers that China was able to maintain the 8.7-yuan exchange rate through government intervention.
