Deputy Governor of the People's Bank of China Yi Gang said China will take further steps to improve the exchange rate formation mechanism of the country's currency, the yuan.

To promote the sound development of its financial market, China will also steadily promote the market-oriented interest rate reform, said Yi, who accompanied Chinese Vice Premier Li Keqiang during Li's visit to Spain on Jan. 4-6.

During their stay in Madrid, Yi said that China, in light of the current situation, will adopt a prudent monetary policy to let monetary conditions return to normal levels.

He also stressed the importance of China-EU financial cooperation against the backdrop of deepening globalization and the constantly-evolving world political landscape.

A strengthened coordination between China and the EU on their macro-economies and financial policies will facilitate the reform of global governance structure and is conducive to maintaining the economic and financial stability of China, the EU, and the world at large, he said.

More importantly, Yi said, the two sides need to strengthen dialogue and coordination to promote the framework for "strong, sustainable and balanced" growth around the globe as well as the reform of the global monetary system, international institutions and financial agencies.

Some issues need particular emphasis under the framework, he said, citing the impact of the Chinese and EU macro-economic policies on their respective economies and the policies' external spillover effect.

Moreover, he said, the effect of the European financial reforms, the non-conventional monetary policy measures adopted by the European Central Bank, and whether or not China could manage to flexibly exercise its macro-economic policies to address its domestic inflationary pressure are also among the hot topics.

On the reform of international institutions, Yi said the EU had made a contribution to the reform of the IMF by giving up two seats on the board to make more room for emerging economies, a move which was applauded by China and the international community.

The reform of the international monetary system will be high on the agenda of the G20 in 2011, whose rotating chair is currently held by France, an EU member.

China is ready to strengthen joint study and deliberation with the European countries, dedicating itself to the perfection of the global monetary system, pushing for the diversification of international reserve currencies and contributing to the formation of a stable reserve currency system with supplies in order and an adjustable total volume, so as to maintain the stability of the global financial system, Yi said.

Regarding the reform of the financial sector, China and the EU jointly formulated the core reform policies and standards for financial supervision and the building of financial infrastructure, which involves creating a prudent macro management framework, strengthening the anti-risk capacity of the banking system, completing the over-the-counter derivatives market and reforming the credit rating system, payment arrangement and accounting standards, Yi said.

In recent years, Chinese and European financial institutions further enhanced the depth and scope of their cooperation.

Besides boosting the rapid growth of bilateral trade investment through trade and project financing, the two sides also saw their financial capital directly invested and take stakes in each other's market.

By the first half of 2010, European banks set up seven corporate banks, 20 bank branches and dozens of representative offices in China, with a total asset value of more than 50 billion euros; nine European financial institutions took the shares of 26 Chinese banks, including the Bank of China (BoC) and the Industrial and Commercial Bank of China (ICBC), with a total investment of 11.55 billion dollars.

The European institutions also took the shares of many Chinese security companies, fund management and insurance companies. By the end of August 2010, China has given the Qualified Foreign Institutional Investor (QFII) license to 32 Europe-based institutions.

The entry of European financial capital into China has brought advanced management skills and rich experience.

Meanwhile, Chinese banks are actively exploring the overseas market. BoC opened representative offices in London and Frankfurt, and five leading Chinese banks launched dozens of branches in Europe. ICBC alone has 10 branches in Europe, Yi said.

In the future, Chinese and European financial institutions can strengthen cooperation in the following fields, Yi said.

They can continue to provide financing arrangements for bilateral trade and investment, and seek cooperation opportunities in the fields of service rearrangement, optimizing revenue-earning structure, increasing capital strength and improving the risk-sharing system.

They are also advised to explore the research, development and innovation of financial instruments and develop financial hedging devices that meet the needs of the Chinese and European markets.

The China-EU trade from January to November in 2010 amounted to 433.88 billion U.S. dollars, a year-on-year increase of 33.1 percent and up 10.4 percent from the same period of 2008, Yi said.

Bilateral trade volume for 2010 is expected to reach 470 billion dollars, he said.