hina's enormous capital account surplus is growing ever-wider as speculation is fueling capital inflow and convertibility restrictions simultaneously limit capital outflow. The exchange of Chinese Yuan for foreign currency is heavily regulated, and in practice, usually forbidden. In attempt to narrow the surplus, China's Central Bank has pledge to loosen restrictions on capital outflow. Now, businesses and consumers will be able to exchange their Yuan for foreign currency, on a limited basis of course. For example, Chinese insurance companies will be allowed to invest overseas, and keep proceeds earned from such investments- in dollars. This concession was made in response to rising foreign pressure to revalue its domestic currency. China continues to maintain such a revaluation will occur, but offers no timetable. Reuter's reports:

Analysts say the remarks show that Beijing is reluctant to revalue, or adjust the yuan's value, fearing that heated speculation may pose a greater danger if it rushes into change. The top policy priority is to relieve pressure on the yuan while developing a market infrastructure to help create conditions to let the yuan eventually move more freely.

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