State Council appoints new foreign exchange chief

China's State Council Friday appointed Hu Xiaolian as the new director of the State Administration of Foreign Exchange (SAFE), replacing Guo Shuqing, who was removed from the posts of foreign exchange chief and vice governor of the People's Bank of China.

The appointment isn't expected to cause any abrupt changes in China's foreign exchange policy, which now keeps the value of the country's currency, Renminbi (RMB), at about 8.27 to one US dollar.

"Hu will not make big changes to the current reforms on the foreign exchange system," said Yi Xianrong, director of the financial policy research office under the Chinese Academy of Social Sciences.

But Yang Xin, a professor with Qinghua University's China economy research center, said he believed Hu would feel pressure in her new position as more "hot money" enters China betting on a quick profit under the expectation of the yuan's appreciation.

More than 130 billion US dollars of hot money is believed to have flowed into China by 2004. This huge sum of capital could cause overheating no matter what sector it was invested in, which has been exemplified by the real estate market.

The flooding of hot money has added to the pressure on the revaluation of the RMB. Hu will play a central role in improving China's exchange rate system and in confronting overseas speculators, banking insiders said.

The Chinese government will gradually loosen its policy to realize a market-oriented managed and floating exchange rate.

"China is working on a plan for a more flexible exchange rate of its currency, but the specific measures might come around unexpectedly," said Premier Wen Jiabao at a press conference after the conclusion of the annual session of the Chinese legislature in March.

Though there is little hope that the unexpected changes will come with Hu's appointment, she is expected to mend up loopholes in foreign exchange management and supervision and to find ways of blocking overseas capital entering China via underground banks and other illicit channels.

The new foreign exchange top regulator is also supposed to slow down the accumulation of China's huge foreign reserves and to enhance their investment profits.

Hu, 47, has spent most of her career with SAFE. She became deputy director of the administration in 2001 and was named assistant to the governor of the People's Bank of China, the central bank, in August 2004.

She replaces Guo Shuqing, who was elected chairman of board of directors of the China Construction Bank Corporation on March 25.

The Construction Bank's former chairman, Zhang Enzhao, resigned amid allegations of fraud and bribery.