The global stock market rout of the past week was sparked by concerns over a possible interest rate rise by the U.S. Federal Reserve and not by the devaluation of China's yuan currency, a senior Chinese central bank official told Reuters on Thursday.
Yao Yudong, head of the bank's Research Institute of Finance and Banking, said the U.S. central bank should delay any rate hike to give fragile emerging market economies time to prepare.
He said Beijing's decision to let the yuan fall in value against the dollar should not make it a scapegoat for the sell-off.
"China's exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move," Yao said.
"We were wronged."
Yao's comments, which came on the same day that state media issued commentaries defending China's policy making, show Beijing's sensitivity to suggestions it may have fumbled economic policy. The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy.
Many analysts, however, say a key factor roiling markets is worry China's economy might be slowing sharply despite Beijing's efforts. That could have a significant impact on global growth, hitting company earnings and reducing demand for commodities.
Yao said China's economy remains on a sound footing, though some emerging market economies face a possible financial crisis in the years ahead stemming from liquidity stresses if the United States raises rates.
"So we hope the Federal Reserve could further delay its interest rate rise, giving emerging markets ample time to prepare. The Fed should not only consider the U.S. economy, but should also consider the global economy, which is very fragile," he said in an exclusive interview.
The Fed, which has been prepping investors for a possible rate hike, declined to comment.
Fed policymakers acknowledge their actions can stir global markets, but argue they need to stay focused on growth at home.
"This isn't about us. This is about developments abroad and I think what we have to assess is how those developments abroad potentially could impinge on us," New York Federal Reserve Bank President William Dudley said on Wednesday as he acknowledged the market turmoil had made a U.S. rate hike in September "less compelling."
Policy insiders have told Reuters that China has been so surprised by the global reaction to its yuan devaluation that it's likely to keep the currency on a tight leash in the near-term to head off any currency war that could spark a broader financial crisis.
China had said the revamp in its foreign exchange regime that opened the gate for the yuan's sharp decline was an effort to let market forces play a greater role in setting the currency's value.
Officials in Washington, who had long pressed Beijing to move toward a more market-determined exchange rate, greeted the shift with some skepticism and indicated they would watch to make sure it was not meant simply to prop up China's exports.
Yao said the yuan is likely to see two-way moves in the near term and may resume its appreciation over time. "The (yuan) exchange rate will be basically stable with two-way volatility. We cannot rule out the possibility of yuan appreciation after 2-3 years."