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Last Updated: Friday, 30 December 2005, 09:03 GMT
China reforms its currency market
Booming textile exports have helped give China a massive trade surplus
China has approved 13 domestic and foreign banks to act as market-makers for yuan trading, in another move towards a more flexible currency.

China plans to bring in a market-making trading system for the yuan early in 2006, letting it float more freely against foreign currencies.

According to reports, the 13 banks include foreign lenders Citigroup, HSBC, ABN Amro and Standard Chartered.

The market-makers could begin their roles as early as next week.

Critics have complained that the government's tight control of the yuan has kept it undervalued, making Chinese exports artificially cheap and damaging other countries' trade balances.

Government intervention

China changed its exchange rate policy last summer, revaluing the yuan 2.1% higher and getting rid of its tie to the dollar.

It is now allowed to rise or fall by 0.3% a day against a basket of other currencies, including the Japanese yen and the UK pound.

Yuan note
Beijing is encouraging foreign investment in banking

But close supervision by the government has meant that the yuan has risen by just 0.48% since the revaluation.

The Chinese government says that introducing market-makers, who must trade the yuan at quoted sell and buy prices, will limit the extent to which it can intervene in the currency markets.

Meanwhile, Chinese press reports say a consortium led by Citigroup has made a successful bid of 24.1bn yuan ($3bn; 1.7bn) for a controlling stake in Guangdong Development Bank.

The deal is for 85% of the state-owned bank, with Citibank keeping a 50% stake and the remaining shares split among several Chinese partners.

It would make Citigroup the first overseas company to buy a controlling stake in a state-run Chinese bank.

Such a deal would need to be approved by the government, which has set a 20% limit on foreign investment in Chinese banks.

China is obliged to open its banking sector to foreign competition under the terms of its admission to the World Trade Organization.

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