If the government continues to face appreciation pressures and the CPI reaches or surpasses the target of 1per cent,it should consider taking advantage of the fiscal policy,exchange rate policy and monetary policy to build a fire wall to ease the pressure.

Presently,the average tax rebate rate in China stands at 15per cent.

The country's finances cannot bear that heavy burden.

By the end of last year,the unpaid tax rebates to export companies reached about 247billion yuan (US$29.8billion).

It will be difficult for the government to continue the high tax rebate rate for a long time.

It has become urgent that tax rebates be reduced.

A reduction in tax rebates will result in a slow growth in exports and a drop in the current account surplus.

This will help ease the pressure for appreciation of the yuan and reduce the burden on the nation's finances.

In addition to pressure from the current account surplus,the yuan appreciation pressure is also a result of the large capital inflow.

As a result,the government could consider encouraging domestic capital to "go abroad.''

Since the beginning of this year,the government started the qualified foreign institutional investors (QFII)programme in China,which allows foreign investors to invest in the domestic securities market.

The financial authorities should consider kicking off the qualified domestic institutional investors (QDII)programme to encourage domestic investors to invest in foreign countries.

The government should also consider seeking investment areas in foreign countries for the country's huge personal savings deposits.

In recent years,personal savings deposits have grown rapidly and cannot find suitable investment channels.

If the money flows to some particular sectors such as the real estate industry,the country's economy will easily get overheated.

The government could also take advantage of the monetary policy to ease the pressure for appreciation of the yuan.

The central bank could lower the interest rate of deposits as required and keep the interest rate of loans unchanged.

This would increase the gains from holding US dollars and ease the pressure on the yuan.

The central bank also could raise the interest rate for loans while keeping the rate of deposits unchanged.

This would result in a declining competitiveness in exports.

The appreciation pressure stemming from the rapid increase of foreign exchange reserves would then ease.

The author is a researcher with the Development Research Centre under the State Council.Enditem (China Daily)