RMB will witness obvious appreciation trend in 2007, and is likely to appreciate by large degree, said Yu Yongding, a member of Chinese central bank's monetary policy committee.

An exchange store staff shows a Chinese RMB$100 banknote) and a US$100 banknote in Hong Kong.[filephoto]

The central government has been trying to avoid hurting export firms too much by RMB exchange rates, but fluctuation of exchange rates should abide by the reality, Yu said Friday at a forum on foreign trade.

"We must implement contractive monetary policy to contain the overheating investment," Yu said.

According to him, China's monetary policy was not tight enough in the past months, which encouraged the investment growth. At present, the ratio of China's investment to gross domestic product has climbed to the world's record of 48.6 percent, and continue to climb.

Short supply of RMB is another factor, he said. As a nation with the largest foreign exchange reserve in the world, China is increasing the issue of central bank bonds to restrain the rapid growth of its basic currency, which will cause tight supply of RMB.

The devaluation of U.S. dollar this year may also cause RMB appreciation, he said. As RMB is linked to a basket of foreign currencies, literally a change of any currency in the basket is likely to bring a change in the rate of yuan to dollar and other major currencies.