June 22, 2007 (LPAC)--Every nation has to watch out for "excessive pursuit of domestic assets by foreign capital", warned China's central bank vice governor Wu Xiaoling at the "10th Asian Financial Crisis Anniversary Forum" in Beijing yesterday. "It is significant to look back on the 1997 Asian financial crisis, as we are addressing an unbalanced global economy, excessive liquidity and fickle financial markets," Wu said. She also said that other nations must be patient about China's reform of its foreign exchange policy, especially as a change in the RMB alone cannot narrow trade imbalances, Xinhua reported today. "China's export-oriented economy is a structural problem, which cannot be fixed merely by changing its exchange rate," Wu said. She called for international cooperation to prevent financial crises.

"A country's financial sector should open in a way commensurate with its domestic financial system," she told the forum. "Opening without due management will pose a threat to financial stability." It was China's strong foreign exchange regulation which protected it from the speculative assaults which wreaked havoc throughout East and Southeast Asia in 1997-98.

Wu said that huge foreign capital inflows could force a drastic inflation in national asset prices, which would be unsustainable when the capital fled for other targets and brought down the national currency. She also said, however, that nations should not hold to "rigid" exchange policies. "

All countries should adopt an exchange rate mechanism in line with their own situations as a rigid, inflexible mechanism is vulnerable to international hot money," Wu said. Increasing speculative attacks by "hot" foreign capitals could easily spark off financial crisis, she said.