Zhao pointed out that the Chinese banking sector and capital market have undergone tremendous transformation, but that another major aspect of the financial industry, possibly the most crucial one-currency policy-has the remained mostly undisturbed.

Some international investors have been pushing hard for yuan appreciation and its convertibility.

"It's not the right time, and it takes a great trek," said Fan Gang, a policy maker with the People's Bank of China, the central bank.

China has spent the past decade trying to learn from both the failures and successes of international monetary policy.

"The East Asian crisis serves as a good example," said Fan.

Ten years ago, Thailand capital market was totally opened to both domestic and foreign investors. Foreign capital could move in and out freely and the Thai baht could be converted into other currencies. "It was very easy for hot money to retreat from the market after investors got what they wanted," said Zhao.

Zhao contended that there is nothing wrong with speculation-the capital market was a mixture of investment and speculation-and that speculators like Soros were actually the scapegoat for the Asian financial crisis. The reason why speculators were able to manipulate the financial markets and usher in their collapse was due to loopholes in the financial industries of those countries.

"China will not fall into the same trap," said Zhao, "But the ultimate goal of the Chinese currency and capital market development is to make it open to all."

Though the Chinese currency is not fully convertible, the government has adopted a less restrictive attitude by making the renminbi exchange rate more flexible and making the Chinese capital markets more accessible for foreign investors.

According to the central bank's recent policy actions, the Chinese yuan can now float plus or minus 0.5 percent each trading day, differing from the previous 0.3 percent. By the end of June 5, the yuan had appreciated 6.11 percent against U.S. dollar since July 2005 when China first adopted the managed floating currency system.

Foreign counterparts remain insatiable and argue that the yuan should be further revalued 15 to 20 percent, according to a Beijing Review report from its North American bureau in Issue No. 20 published on May 17.

"China must proceed in line with its development condition," said Zhao, "It would be disastrous if we follow these international voices blindly."

The Chinese capital market has also further opened to international investors through the qualified foreign institutional investor (QFII) system. The Chinese Government agreed to allow the investment quota for QFIIs to increase to $30 billion from the previous level of $10 billion during the second China-U.S. Strategic Economic Dialogue held on May 22-23.

"The QFIIs' performance during the recent Chinese stock market slump (the benchmark Shanghai Composite Index plummeted from 4334 on May 29 to 3670 on June 4) was very noticeable," said Zhao.

The telling details occurred after the Chinese Ministry of Finance announced it would raise the stamp tax on stock trading from 0.1 to 0.3 percent, leading to four days consecutive stock price plunges. Many small investors stampeded to sell their stocks during those days.

On seeing the panicking investors, QFIIs issued reports, inducing retail investors to sell their stocks.

"They've just got new quota permissions after arduous negotiations. It is ridiculous that they would be pessimistic about the Chinese capital market," Zhao said, criticizing the QFIIs' back and fill game.

"They want to buy at the lowest possible price," said Zhao. "Coincidentally, the stamp tax scenario provided them with a golden opportunity to persuade people to sell stocks so that they can buy."

"QFIIs are very ambitious."

Financial safety crucial

In a world where most regions are peaceful, national security is not only reflected by national defense. During globalization, safety means economic safety, or rather, financial security.

On January 19, 2007, the Central Financial Working Conference was held in Beijing. Differing from previous conferences, this time leaders and senior officials from national defense and public security departments attended.

"It means that the government has attached great importance on the stability of the national financial market, which is crucial to build up a harmonious society and a harmonious world," said Qiao Liang, a senior expert with China Association of Policy Science.

"In the broad extent, wars in the 21st century are mostly financial," Qiao added.

According to IMF statistics, world investors lost a total of $700 billion directly during the 1997-98 Asian financial crisis, more than twice as much as the economic losses during the World War I.

Professor Zhao said the current stage of the Chinese financial system could be compared with that of America in 1970s and 1980s. Zhao said it is paramount that China should enact more laws guiding the financial market as well as monitoring investor quality and behavior.