But the central bank's decision also represents the clearest signal yet that China is committed to achieving convertibility under the capital account. In his interview, Mr. Dai laid out further steps toward opening the capital markets to foreign investors. In contrast to other regional Asian currencies, China's yuan has come under strong pressure over the last year amid record foreign capital inflows. A similar investment figure is expected for 1997. To hold back the yuan's rise, the central bank has been forced to buy dollars nearly across the board.
Monetary policy is another factor behind the central bank's decision.
The new rules allow for more fine tuning of supply and demand and may pave the way for an interest-rate cut. Some analysts say the government is expected to cut deposit rates to increase attractiveness of bond yields. Beijing has kept credit tight amid inflation fears, but now may be re-evaluating these policies amid efforts to get state companies more working capital to speed reforms. But credit easing could divert more cash into China's stock markets, fueling more speculative equity buying. What is needed now, analysts say, is for the government to put in place needed banking and administrative controls before taking Mr. Dai's prescribed next step.