Joseph Yam, chief executive of Hong Kong Monetary Authority said Chinese mainland's maintenance of a fixed exchange rate currently is not a problem, particularly with capital controls, according to a government press release Wednesday.

Yam made such remarks when speaking at the International Center for Banking and Monetary Studies in Geneva Tuesday.

He noted that there is scope and attraction for experimenting with greater flexibility in the fullness of time and that is indeed the declared intention of the mainland authorities. "With ongoing macro-economic adjustment, I doubt if this is the right time for experimenting," he said.

He said it is true that there has been large capital inflow lately, as manifested in the rapid build-up of foreign reserves. He said it would be a temporary phenomenon, although, with interest rates of the RMB higher than those of the US dollar, there is a significant cost incurred in sterilization.

With a high savings rate, rapid economic growth, and the attraction of an emerging market of mammoth dimensions and ample opportunities, the mainland can afford to adopt a cautious approach to financial liberalization, he said.

"Even with continuing tight capital controls, there is no lack of foreign direct investments," he added. Foreign portfolio investments into the Chinese mainland to the extent that these opportunities are available, for example, in the stock market of Hong Kong, are also in great demand.

Talking about mainland's banking system, he said the preponderance of the banking sector in domestic financial intermediation calls for great care in the reform. "This means the continuation of state ownership and financial support, and for the time being, de facto limited competition from foreign banks."

"On the other hand, there is a strong desire to modernize management and move towards the observation of international standards, to facilitate the ongoing commercialization," he said.

In conclusion, he said the strategy of financial sector development, as in the case of the overall development strategy of the mainland, is characterized by gradualism, as against "big bang".

Source: Xinhua