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

same time obtained slightly more services from each bank than did firms that used only larger banks. this suggests that community - bank - only firms are more likely to cluster their purchases at a single institution than are other firms, behavior that is consistent with the importance of relationship finance. overall, in my judgment, our survey data confirm the view that, despite changes in the competitive environment, community banks continue to play an important role in providing relationship finance to small businesses in their local banking markets. potential conflicts of interest the very relationships that underlie relationship finance, and that constitute the primary source of community bankers ’ comparative advantage in meeting the financial needs of small businesses and households, also present challenges. as i mentioned earlier, relationship finance dates back to the very earliest banking institutions in our country. although the extreme form of relationship lending that characterized early nineteenth century new england banking had the potential to undermine the safety and soundness of these early banking institutions, naomi lamoreaux ’ s research suggests that market forces acted to minimize the adverse effects. in an environment characterized by easy entry into banking, bank directors apparently had strong incentives to monitor lending and minimize risks because their business success depended crucially on maintaining their unsullied reputations. of course, this salutary outcome was by no means inevitable, as evidenced by experiences in a number of developing countries where this type of lending behavior has had quite pernicious effects ; rather, the outcome was the result of the particular circumstances and competitive environment prevailing in new england at the time ( lamoreaux, 1994 ). when it comes to more recent times, evidence on the extent to which conflicts of interest resulting from close ties between banks and their potential borrowers may have adversely affected bank performance is limited to studies of the largest banking organizations. one example is my own research with phil strahan that looked at linkages between the boards of directors of banks and nonfinancial firms. such board linkages can be beneficial because they improve information flow between the linked firms ; however, they can also lead to conflicts of interest because the individual who serves as the link has fiduciary responsibilities to both firms, and those firms ’ interests can sometimes diverge. in our research, phil and i focus on board linkages between large u. s. banks and fortune 500 nonfinancial firms. this focus is driven largely by data availability. i would be very interested in hearing from you about the extent to which community bankers sit on the boards of nonfin