crisis in south - east asian countries serious lessons can be drawn from the financial crisis in south - east asian countries. this is also true for china despite the fact that the country started early in 1993 to cap the bubbles in the economy. the major lessons for us can be summarised as follows : first of all, it is essential to maintain an equilibrium for aggregate demand and supply, and especially to be on guard against the bubbles in the real estate and stock market ; second, the structure of external borrowing should be proper and external borrowing by domestic businesses should be well regulated. before the crisis, fiscal deficits were small, economic fundamentals were sound and central bank reserves were high. the underlying cause for the crisis is the over indebtedness of business entities, especially the large amount of short - term borrowing not necessarily reported to the central bank. given what has happened, china will continue to favour foreign direct investment and long - term commercial borrowing as a general policy. at the same time, external borrowing by domestic businesses shall be reviewed very carefully and subject to a ceiling ; third, efforts shall be made to actively pursue the development of capital market and gradually achieve capital account convertibility for the renminbi. on top of that, the country must maintain substantial foreign exchange reserves ; fourth, a safe and sound financial system must be in place, and no government agencies or individuals should interfere with the business operations of commercial banks. in an effort to ensure the stability of financial industry and reduce financial risk, a dozen policy measures have been introduced. a better structured financial system is sure to emerge in china three years later. a strong commitment to an open policy we shall not abandon the open policy simply because of the financial crisis in south - east asia. by the end of 1997, 173 foreign financial institutions were licensed to operate in china with total assets amounting to $ 36 billion. the chinese banks, insurance and securities companies had 687 overseas establishments actively developing businesses abroad. we will continue to grant licenses for foreign banks and insurance companies and authorise more foreign banks to do local currency business on a trial basis. however, we would be more cautious in this regard. china as a safe haven for foreign investment in asia with good reason, china can be expected to maintain its status as the second largest recipient for foreign direct investment. although the contractual amount of fdi has decreased to a certain extent, the amount of actual investment has been on the rise, particularly by big multinational corporations. china has a stable

businesses can enhance their competitiveness via reducing cost and improving product mix. it can be said with a high degree of certainty that prospects for the country ’ s exports this year will remain favourable. i would like to reaffirm our commitment to hold the yuan exchange rate steady with no consideration for depreciation and to stand ready for the test of the market. this commitment can be seen as our contribution to financial stability in asia. over 8 % gdp growth in 1998 the financial crisis in some south - east asian countries will have some impact on the growth rate for china, for example trade between china and south korea. however, china largely depends on its domestic market for growth. in 1998, china will continue to expand its export market and increase its domestic investment. with continued price stability, gdp is expected to grow over 8 % in 1998. the slowdown of the gdp growth to 8. 8 % last year is attributed to international factors and the sluggish growth of township and village enterprises. we believe that supported by the vigorous measurers to address the adverse influence, we will be able to maintain gdp growth over 8 % in 1998. to be specific, first of all we shall continue to pursue a moderately tight monetary policy and make timely adjustment as necessary. broad money will be expected to grow by 16 - 18 %, narrow money by 17 % and injection of cash by yuan 140 billion. more discount and rediscount activities will be expected for commercial papers. second, banks will be expected to improve their services in support of new growth areas. the financing service for residential houses will be improved so as to strongly support the growth of the market for residential houses, to expand the scope of residential lending and remove the lending quotas imposed on public housing projects for less privileged people. loans denominated in foreign exchange will be actively developed on the domestic market with a projected increase of 10 - 15 % of foreign currency denominated lending. the input for agriculture, railway, highway and high - tech industry will be increased under the precondition of ensuring the service of loans. finally, the interest rate instrument will be used appropriately to adjust the money supply, but at this moment the central bank has no intention to lower interest rates. toward the establishment of a modern financial system and a regulatory / supervisory system in 1997 the financial sector functioned in a sound manner and contributed in a significant way to economic development and social stability. in 1998 we will continue to pursue a moderately tight monetary policy and make strong