* Wen says China may expand bilateral currency swaps
* Says China's economy in better shape than expected
* But says important to prepare for worse
* C.bank governor says need to keep tweaking policy
By Kirby Chien and Eadie Chen
BOAO, China, April 18 (Reuters) - Chinese Premier Wen Jiabao said on Saturday that the economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system.
Wen and central bank governor Zhou Xiaochuan also cautioned against jumping to the conclusion that China is already on the path to economic recovery, after data issued on Thursday showed signs of an upturn in momentum.
Wen's currency comments, an apparent reference to U.S.
economic management that Beijing has blamed in part for the
global financial crisis, were twinned with a pledge to promote
more international use of the Chinese yuan
Wen did not mention the United States by name but he has expressed concern in recent months about the safety of Chinese investments in U.S. dollar assets.
"We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system," he said in his opening address to the Boao Forum for Asia, held annually in the Chinese island province of Hainan.
It was the second time this month that China has made such an appeal, following President Hu Jintao's call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies.
LONG-TERM SOLUTIONS
China caused a stir in March when central bank chief Zhou floated the idea of reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange by developing the Special Drawing Rights (SDRs) issued by the IMF.
But at the London G20 forum, China did not call for immediate discussion of the subject.
Speaking at the Boao forum on Saturday, Zhou said that his proposal on SDRs was intended mainly to contribute his thoughts on the root cause of the financial crisis and what needed to be done in the long run to prevent such situations in the future.
He was not suggesting that drastic changes to the financial system needed to be taken in the short term, Zhou said.
"It's just like treating a patient. First we need to make a diagnosis. Then comes treatment," Zhou told the forum.
"But right now, not all the doctors have the same diagnosis.... Unfortunately, it seems that there is still no consensus among various countries about the source of the financial crisis," he said.
Premier Wen said China would look at expanding its currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset.
"We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries," he said.
China's central bank has signed six swap deals since mid-December, totalling 650 billion yuan ($95 billion), with countries from Argentina to Indonesia.
The yuan's international potential is sharply constrained by its limited convertibility, an issue that Wen did not broach.
STRONG CHINA
Wen highlighted China's relative strength in the face of the global financial crisis and told the audience of Asian government and business leaders that Beijing stood ready to support other countries through the difficult times.
"A series of economic stimulus measures adopted by China have shown initial results and there have been positive changes in economic performance, which has been better than expected," he said.
His wording was nearly identical to that at a State Council, or cabinet, meeting this week after China said its economy grew at 6.1 percent in the first quarter from a year earlier.
While that was the weakest quarter in year-on-year terms since records began in 1992, analysts said it represented a rebound in quarter-on-quarter growth.
But Wen also said that China would still err on the side of the caution, sticking to its active fiscal policy and moderately loose monetary policy -- which, in practice, have meant a surge in government spending and bank lending.
"We would rather over-estimate the severity of the situation and fully consider difficulties in making longer-term preparation for bigger difficulties," he said.
Central bank governor Zhou also emphasised that, even though there were positive signs that the economy is starting to recover, China is still in the stage of struggling against the global economic slowdown and financial crisis.
"The situation of the crisis is changing constantly. We need to tweak our policies in line with the changing stage of the crisis," he said. [ID:nPEK359400]
Liu Mingkang, chairman of the China Banking Regulatory Commission, added at Boao that he was cautiously optimistic about the economic outlook and thought banks had adequate provisions to cover any potential rebound in bad loans. [ID:nPEK358776]
Zheng Xinli, a senior Communist Party adviser, told reporters in Boao that he thought the economy had already hit bottom and would start to pick up steam in the second quarter.
But asked if the government would be able to hit the 8-percent GDP growth target for the year, Zheng said: "I think it is not guaranteed." [ID:nPEK78002] ($1=6.832 Yuan) (Additional reporting by Michael Wei in Boao and Aileen Wang in Beijing; Writing by Jason Subler and Simon Rabinovitch)