Domestically,there is no need to worry about a possible overheating economy resulting from the large money supply due to the purchase of foreign exchange.

The government set a target of a 0to 1per cent rise in its inflation rate at the beginning of this year.

During the first six months,the consumer price index (CPI),the key inflation gauge,was 0.6per cent,a sign of early inflation.

During that period,the broader money supply grew more than 18.5per cent.

But the June CPI was only 0.3per cent.

With the world economy still suffering from deflation,it is still unknown whether the CPI in China will continue to pick up in the second half of this year.

Appreciation of the yuan would be detrimental to keeping down inflation.

During the first half of this year,China was hit seriously by the SARS (severe acute respiratory syndrome)epidemic.

Industries such as tourism and catering suffered great losses.

But this helped cool down a possible economic overheating.

During the period,the country's exports rose 34per cent and imports increased 44.5per cent.

The import growth was much faster than the export growth.

Meanwhile,the SARS outbreak resulted in less trade orders from foreign countries.

This will have a negative impact on exports for the second half of this year and next year.

China's trade surplus is expected to fall.

Foreign direct investment will continue to be stable.

As a result,the fast increase in foreign exchange reserves will slow down.

The easing of economic overheating and the slowdown in foreign exchange reserves will help ease the pressure for renminbi appreciation.

China's current trade surplus is closely related to the country's tariff policy and the quota system.

As the country has entered the World Trade Organization,trade protection will be reduced.

In the coming years,it will be impossible for China to keep the trade surplus of about US$30billion witnessed in 2002.

This will help ease the internal pressure for appreciation of the yuan.

Now,the impact of SARS on the Chinese economy is weakening and economic development is returning to the normal.