According to its first report on financial stability, the central bank said China needs to pay special attention to 10 major problems facing it in order to maintain financial stability.

China's inefficient use of raw materials and energy in the past decades has been blamed for their shortages and rising prices in both domestic and overseas markets.

Citing examples of the financial turmoil that hit Mexico, Thailand, Russia, Brazil in late 20th century, the report said financial stability concerns political, economic and social stability, and China must pay close attention to existing problems to prevent financial risks and push forward reform.

Other issues listed by the report include coordinated development of direct and indirect financing, hidden fiscal deficits, control and liberalization of capital prices, improvement of the corporate governance of financial institutions, risk supervision and control of overlapped financial services, and the impact of economic and financial globalization.

It said hidden fiscal deficits caused by a lack of funding for social security and debts of local governments may affect financial stability.

As China is in the process of improving its mechanism to form interest rates and exchange rates, both the corporate world and residents should adapt themselves to the changing environment, which is characterized by liberalization, said the report.

The report also called on the corporate world and residents to learn how to recognize and deal with risks involving the interest and exchange rates.

The central bank voiced its concerns over the uncertainty brought by the "overflowing" effectiveness of economic and financial globalization on China's financial stability.

Facing many uncontrollable factors, such as soaring oil prices and interest rate hikes, the depreciation of the US dollar, international disputes and even wars, China's financial stability is coming under growing influence from the international economic and financial environment, noted the report.

Coupled with the benefits from China's growing integration into the world's production, trading and capital system is the increased uncertainty and risks arising from globalization, it said.

China will establish its financial stability index system and early-warning system and improve its monitoring and evaluation methods in the vulnerability of its financial system in a bid to set up a rapid-reaction mechanism for financial risks of different kinds and scales.

Aside from its annual report and a report on the implementation of monetary policies, the central bank said it will publish such reports every year.

(Xinhua News Agency November 8, 2005)