China will maintain a prudent economic policy and will have "decontrol" of exchange rates and interest rates, Chinese Central Bank Governor Zhou Xiaochuan said on Thursday.

A Chinese bank clerk counts banknotes at a branch of the China Minsheng Banking Corporation Limited (CMBC) in Nanjing, Jiangsu province, July 22, 2005. [Reuters]

"We will maintain the economic policy (that is) prudent....We will have decontrol of interest rates and foreign exchange," he told reporters on the sidelines of the World Economic Forum.

"We will expand the flexibility to (those who) participate in financial markets (in China). This is the year we'll further open up service sectors especially in the financial services," he added.

"Our foreign exchange policy is already in a good position. (The yuan) can float in a band."

Asked whether China would broaden the band, Zhou replied: "You know, Chinese economic reforms are gradual."

"Already some neighbouring countries welcome China... in Vietnam, Laos, Myammar, Kazakhstan, Mongolia... In border trade they choose the yuan. I think this is a good thing."

Zhou said the weakening of the dollar might cause fluctuations in financial markets and could reduce world growth.

"The U.S. should increase their savings, he said."