##ficient banking governance structure putting china ’ s financial system into a more vulnerable situation. to deal with the problems of low capital adequacy ratio in state - owned commercial banks and weak risk prevention capability, we took a wide range of measures to reform the state - owned commercial banking system and enhance their risk prevention capability. in 1998, we made 270 billion yuan worth of recapitalization to stateowned commercial banks and transferred 1400 billion yuan non - performing loans from these banks. the top priority in the following years was the reform on stateowned commercial banks. we ushered in the reforms on ownership structures of these banks with the successful listing of the industrial commercial bank of china, the china construction bank, and the bank of china. governance structures of state - owned commercial banks saw fundamental changes owing to the listing of these banks, corporate transparency enhancement, and supervision based on international accounting standards and external audit requirements. although facing huge accumulation of foreign exchange reserves, china insisted on introducing foreign strategic investors, encouraging overseas listing of commercial banks, and increasing inflows under capital account during the reform of state - owned commercial banks. it was our hope to break constraints hard to remove under china ’ s current system and promote banking governance structure with the help of international experience and market pressure. greater efforts were made to develop and foster financial markets. under - developed asian financial market led to insufficient channels and mechanisms to divert risks, as well as asian countries ’ failure to handle financial crisis. only with the help of a wider open financial sector, game rules in the international market, and diversified and flexible financial instruments can we defeat crisis. over the past decade, china has gradually established a financial market system comprised of money, bond, securities, foreign exchange, gold and futures markets featuring multi - layered bourses, diversified products and varied mechanisms. in addition, we embarked on non - tradable shares reform to advance reform of financial systems so as to lay a solid foundation for overall mechanism transformation and full play of the role of capital market. besides, we made strides in developing bond market by improving assets structure of capital market to address the problems of simple market structure and mismatch of market size between securities market and bond market so as to facilitate optimal assets management of listed companies and portfolio of investors. reform of the foreign exchange management system proceeded smoothly. the asian financial crisis made us realize how important a flexible exchange rate regime and foreign exchange rate management system to economic growth was. therefore, after the full

convertibility of rmb under the current account in 1996, we made continuous efforts to push forward the reform of foreign exchange management system by simplifying procedures of rmb convertibility under the current account, gradually lifting restrictions on foreign exchange uses under the capital account, meeting appropriate demands on foreign exchange, followed by a series of reform measures on the foreign exchange rate regime based on market demand and supply. on july 21, 2005, the rmb exchange rate against us dollar was adjusted to 8. 11 yuan, and the exchange rate policy featuring a peg to the us dollar was changed to an arrangement with reference to a basket of currencies. from may 21, 2005, the band of trading prices of the rmb against the us dollar on the interbank foreign exchange spot market has widened from 0. 3 percent to 0. 5 percent, which meant that daily trading prices of the rmb against the us dollar on the interbank foreign exchange spot market could float within a band of 0. 5 percent around the central parity released by the china foreign exchange trading system. taking into consideration of economic and financial situations both at home and abroad, the pbc will keep regular floating of the rmb exchange rate based on market supply and demand with reference to a basket of currencies so as to keep the rmb exchange rate basically stable at an adaptive and equilibrium level, facilitate broadly balanced bop, and safeguard the stability of macro economy and financial market. major progress was made on the building of financial legal system, regulatory mechanism and infrastructures. around 1998, china had enacted or revised a series of laws and regulation to provide stronger support for regulating market activities and safeguarding market order, such as the securities law, the company law, the law on enterprise bankruptcy, the law of anti - money laundering and the property rights law. thanks to effective coordination and risk monitoring by the financial market regulatory agencies, such as the pbc and the china banking regulatory commission ( cbrc ), a full - fledged regulatory framework on financial market has taken shape. infrastructures building made major achievements featuring better systems for transaction, custody and settlement and more efficient interaction of markets. adjustment on economic structures was intensified. it was the most important reform measure we adopted following the asian financial crisis. one of the reasons behind the crisis was the inappropriate economic structure and weak capability to forestall crisis. presently, china is confronted with dual challenges of global economic imbalance and domestic economic imbalance. the appreciation pressure of the rmb came