If the Group of Seven (G7) is serious about its warning of global growth slowdown, it should not be fixated on the Chinese currency, a false cause of global imbalances.

Given China's growing contribution to world growth, leading financial officials of developed countries should hope Chinese policymakers be as prudent as possible. After all, China's success to manage its economic development and reforms, including reform of its exchange rate mechanism, will matter a lot for world economic growth.

The G7 issued a new statement to raise the pressure on China for faster appreciation of its currency. China's rising current account surplus and domestic inflation has been cited to justify these countries' call. It seems that they have deemed an accelerated appreciation of China's effective exchange rate a proved recipe for the world's gaping trade imbalances.

Unfortunately, neither can such a recipe make much sense today when the world economy has so much to expect from China's robust growth nor has it been historically proved effective.

The International Monetary Fund has just pointed out in a report that China is now the single most important contributor to world growth. Another report by the Boston Consulting Group said that China is likely to become the world's second largest consumer market by 2015.

While expensive energy prices, the global credit squeeze and the weak US housing market all might moderate global economic growth, it makes little sense to risk a drastic slowdown of the Chinese economy. Faster appreciation of the Chinese currency can simply result in undesirable consequences that domestic enterprises have yet to prepare for and thus slow the country's economic growth.

Chinese policymakers know well that to solely adjust the exchange rate in the absence of restructuring policies will hurt the real economy of both China and the world.

The Chinese authorities' decision to reform the foreign exchange regime in a controlled manner and in a gradual fashion should thus not be observed separately. It is integral to the Chinese government's efforts to strengthen macroeconomic management, improve investment structure, increase fiscal expenditure in social sectors, boost domestic demand, and speed up reform in the financial sector.

(China Daily 10/22/2007 page4)