"We will loosen controls over foreign exchange under capital account, and explore a way to realize Renminbi capital account convertibility in certain area and with certain amount,¡± said Dai Xianglong, mayor of Tianjin and former president of the People's Bank of China, or the central bank.

    He added that the government would improve the management foreign exchange under current account, and gradually allow residents and enterprises to buy and sell foreign exchange on a voluntary basis.

    Experts believed that the new policies will be breakthroughs in liberalizing the country's foreign exchange regime, and China will probably accelerate efforts to loosen controls over foreign exchange and promote free conversion to the Renminbi.

    Under the new policies, banks will be able to develop offshore finance in Binhai, which will facilitate exchanges between foreign lenders, borrowers and investors.

    The reforms mean that there will be no limit to the amount of foreign exchange that can be transferred between their headquarters and branches. And the threshold for individuals to hold shares in foreign listed companies will be lowered, which experts believe will help ease the pressure of China's huge 900-billion-plus U.S. dollar foreign exchange reserve, the largest in the world.

    Liu Jinxia, a divisional head with the Tianjin branch of the Overseas-Chinese Banking Corporation, told Xinhua, "Offshore finance will draw large foreign-funded projects and core departments like research and development centers," said Liu. "It will also expand the business of banks and attract more foreign-funded financial institutions."

    "These policies are breakthroughs in liberalizing the country¡¯s foreign exchange regime," said Meng Hao, director of the international financial research center at the Tianjin University of Finance & Economics.

    "Facing a swelling foreign exchange reserve and mounting pressure for the yuan's appreciation, China will accelerate efforts to loosen controls over foreign exchange and promote free conversion to the Renminbi," said Dai Jinping, director of the international economic research institute at the Tianjin-based Nankai University.

    "To avoid risks, China can only reform its foreign exchange regime step by step," Dai continued. "Tianjin will act as the icebreaker for the country's financial reforms."

    The Binhai New Area is a national pilot reform base listed in the country's development plan for 2006 and 2010.

    Upon completion it will cover an area of 2,270 square kilometers and is situated 120 kilometers to the southeast of Beijing. It generated 160 billion yuan in gross domestic product in 2005.

    China is trying to turn the area into its third economic engine following Shenzhen and Pudong of Shanghai, the economic powerhouses of the country's southern and eastern coastal areas.

    "The financial reforms will create a freer environment for capital flow and provide huge funds for enterprises, which the area needs to attract if it is to grow into the economic center of the North," said Meng.

    In the first seven months of this year, contracts involving foreign funds of more than 3.5 billion U.S. dollars were signed in Binhai, up 27 percent on previous year.

    The foreign exchange reforms will lead to the establishment of a voluntary system of selling and buying foreign exchange. Under the present system, enterprises are either not able to retain any foreign exchange or are required to keep it under a certain level.

    The reforms will grant companies more initiative and flexibility, and make foreign trade more convenient, said Ning Jinyun, general manager of the Tianjin Textile Group Import and Export Inc..

    The reforms will stimulate the foreign trade development of the Bohai Sea coastal area and even that of north China, said Dai.

    "The set of comprehensive financial reforms will attract enterprises from the south to the north, and eventually form China's new economic growth points in the northern regions," Meng predicted. Enditem