China does not need to accelerate the appreciation of the renminbi against the US dollar, according to Cheng Siwei, vice-chairman of the standing committee of National People's Congress, an influential voice in Chinese economic policy making.
"My point is that we don't need to accelerate the appreciation of the renminbi. The dollar will not weaken very much and may get stronger, as happened [in August]," Mr Cheng told the Financial Times
in an interview.
"This makes appreciation of the Chinese currency against the dollar less necessary," he said, because the renminbi was still likely to appreciate against other currencies.
The comments are likely to disturb many in the US, who are hoping that faster appreciation of the renminbi would help rebalance the world economy and improve prospects for US growth.
The Chinese currency has appreciated by 7 per cent against the US dollar this year. But the pace of appreciation has slowed sharply over the last two months. In August, the renminbi even depreciated slightly against the dollar. This is only the second month that this has happened since China moved away from its dollar peg in 2005.
Mr Cheng acknowledged that "to speak frankly, there are some disputes" about exchange rate policy in Beijing. But the views of Mr Cheng, who rose to prominence outside China after he became one of the first senior officials to warn of a Chinese stock market bubble, will be seen as significant.
Mr Cheng also underlined the Chinese government's worries about inflows of speculative short-term capital or so-called hot money, which he estimated totalled about $100bn last year.
"This year, our trade surplus is decreasing, but our foreign reserve accumulation is increasing. This means even more hot money is flowing into China. If the tide changes, the hot money will flow out. So we have to monitor the funds as they flow in and also monitor their flowing out."
Mr Cheng warned that the strength of domestic consumption could not compensate for the weakness of investment and net exports. Although the government had introduced measures in July to loosen credit and reduce export taxes, "we need to consider fiscal policy action as well", he said.
"Government revenue increased by 33.3 per cent in the first half of this year. But we have many big expenses like the Olympics and the aftermath of the earthquake. So I don't think we can put a big sum of money to expand public spending. But we have put 3.5 billion yuan ($512m) into subsidising small and medium-sized enterprises."
Mr Cheng, who expects oil prices to fall below $100 a barrel as high prices weaken demand and stimulate production of substitutes, said it would not be long before fuel subsidies were withdrawn in China. "This is not a good measure. It is an emergency measure. So we should let the market determine the price."
(China Daily September 1, 2008)