, in april 2005, the reform in the icbc was started, and reform in the abc and the china development bank was put on agenda. reform in this front went ahead in parallel with the pilot reform program of non - tradable shares in listed companies, the introduction of shortterm corporate financing bills and asset securitization products in the money market, and the progress in the reform of rural credit cooperatives. as a result, the deployment of reform in large financial institutions, which is the foundation for exchange rate regime reform, was completed by july 2005. meanwhile, the domestic pricing mechanism of resources was gradually reformed ; reform in enterprises, particularly in state - owned enterprises ( soes ) proceeded smoothly ; a group of large enterprises were listed in domestic and overseas markets ; restructuring efforts aiming at better resources allocation was strengthened ; and corporate governance and finance management were enhanced. progresses in these areas reinforced the foundation for exchange rate regime reform on the micro level. because of all these developments, it was believed that it was the right time to further reform the exchange rate regime. on july 21, 2005, china improved the managed floating exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. ii. the framework of the managed floating regime was enhanced and its content enriched 1. the mechanism that moves the exchange rate towards the adaptive and equilibrium level has been gradually established. the rmb exchange rate first dropped and then climbed up in general over the past three decades. since 1978, the yuan depreciated from the initial 2. 8 yuan per dollar, then moved downward to 8. 7 yuan per dollar in early 1994, after which it edged up to 8. 11 yuan per dollar in july 2005, and further rose to 6. 85 yuan per dollar in late 2009. the exchange rate has been allowed to move within a wider band, i. e., from a daily band of 0. 3 percent against the us dollar at the start of the reform in 2005 to 0. 5 percent in 2007. as a result, market participants began to search for the adaptive and equilibrium exchange rate level by looking at balance of payments positions and foreign currency supply and demand. 2. market supply and demand has an increasingly important role in determining the exchange rate. following the liberalization of the rmb current account in late 1996, and with increasing channels for capital flows such as direct investment, portfolio investment and cross - border financing

, corporate and government savings. if total savings exceed domestic investment, the surplus will take the form of foreign reserves. to analyze the drastic increase of imbalance of savings and trade in east asian countries that emerged after 1997, we need to examine the impact of the asian financial crisis on savings ratio in these countries. the high savings ratio and large foreign reserves in the east asian countries are a result of defensive reactions against predatory speculation. during the asian financial crisis, the rampant speculations of hedge funds caused large capital inflows and subsequent reversal in these countries, which exacerbated their economic woes. people in these countries were shocked, and disgusted by these speculative attacks. afterwards, many suggested that unregulated predatory speculation caused the crisis, and appropriate international regulation was needed. however, for various considerations, some countries were against such regulations, and failed to see the need to adjust the regulatory frameworks. international organizations also failed to perform their regulatory responsibilities over abnormal capital flows, forcing the east asian countries to amass foreign reserves to fend for themselves. the increase of savings ratio and current account surplus in the east asian countries is also a result of the rescue plan designed by international organizations. the rescue plans were silent on regulating cross - border speculative capital flows, which otherwise should have been put under scrutiny. instead, excessive and stringent conditionalities were imposed, demanding that the crisis - stricken countries adopt tight fiscal and monetary policies, raise interest rates, cut fiscal deficits and increase foreign reserves. in the decade thereafter, the east asian countries learnt the lessons, and increased foreign reserves and domestic savings in order to beef up their defense against financial crisis. of course, there were also vulnerabilities in economic development models, foreign debt management as well as institutional arrangements of the east asian countries. sweeping structural reforms on the corporate and financial sectors were launched in the wake of the crisis, social security systems were improved, and education and healthcare systems reformed. however, it takes time for these efforts to take effect. iv. can china adjust its savings ratio effectively? during the asian financial crisis, china, as a responsible large economy, did not devalue its currency and paid the price – a fairly slow recovery. the endeavor of the chinese authorities to maintain the stability of rmb against all odds contributed to stemming the spread of the financial crisis. after the crisis, china intensified efforts to revamp its corporate and government sectors with the deepening of market - oriented reforms. profitability of enterprises