Mundell was in Zhuhai to attend the World Economic Development Declaration Conference (WEDDC) and was one of the drafters of the declaration.

China has seen a rapid growth of forex reserve this year leading to an increasing money supply, with which the economy is labeled overheated, but this is not a problem China has to worry about, he told the press at WEDDC, an economic forum running from Thursday to Friday at a coastal resort in south China's Guangdong Province.

The very slight inflation this year will counteract the deflation China had last year and the currency expansion will lead to a growth of import to balance China's export surplus, he said. This will adjust Chinese economy to a favorable status, he added.

According to the People's Bank of China (PBOC), the broad money supply (M2) increased 20.7 percent on a year-on-year basis in China by September this year while the narrow money supply (M1) up 18.5 percent.

The fast growing forex reserve is pushed strongly by commercial banks rather than overheated economy, Mundell said.

Those banks pour a huge amount of capital into China, predicting that the country will appreciate its currency and, intend to cash in, he added.

The PBOC said China's forex reserve added by US$97.5 billion in the first nine months this year, US$51 billion more than that of last year.

By September, China's forex reserve totaled US$383 billion.

(Xinhua News Agency November 7, 2003)