A Chinese expert believes that the best solution to China''s balance of payments issue is to allow the national currency, the yuan, to appreciate, the China Securities Journal reported on Thursday.

     Zhu Baoliang, deputy director with the Economic Forecast Department of the State Information Center, said at a forum that allowing the yuan to appreciate by around five percent a year against the U.S. dollar would be appropriate.

    The gain in value could be even faster due to China''s rapidly growing trade surplus, which reached 61.45 billion U.S. dollars at the end of June, he said.

    Zhu suggested the government avoid raising interest rates in its efforts to curb the surging balance of payments problem, saying that an interest rate hike could cause a sudden inflow of "hot money" into the country and further increase China''s foreign exchange reserves, which climbed to 941.1 billion U.S. dollars at the end of June, up 32.37 percent on the same period a year earlier.

    The center''s analysis suggests that an increase in interest rates will further spur China''s exports and negatively impact the government''s macro-control efforts, he added.

    He proposed that the government solve the balance of payments issue by reducing export tax refunds, abolishing policies favorable to foreign direct investment projects and standardizing income taxes for domestic and foreign enterprises.  - Xinhua News