BEIJING - CHINA can afford a yuan appreciation of 3 to 5 per cent annually, central bank adviser Li Daokui said on Friday, but he expressed concern that the US Senate might back a trade sanction bill that would increase pressure on a faster yuan revaluation.

'Based on historical experience, yuan appreciation of 3 to 5 percent is affordable for China,' Mr Li said during a forum. However, Mr Li said the pace of yuan appreciation should be based on domestic factors, rather than foreign pressure. 'The yuan should rise in a controllable and gradual way, so the country's export companies will not go bankrupt,' he said.

The reference rate of the Chinese currency was set at 6.6908 on Friday, having already gained 2.1 per cent against the greenback from its level in mid-June, when China scrapped the dollar peg and pledged to increase currency flexibility.

'China has shown positive will on the currency issues, and is moving in the right direction, and we (China and the US) need more communication about real issues that matter to bilateral ties,' said Muhtar Kent, chairman of the US-China Business Council. Mr Kent said no one can pressure other countries regarding their monetary issues.

'In the future the pace of appreciation could probably go beyond our expectations,' Yuan Gangming, an economist with Tsinghua University, said on Friday. He said the pace should not exceed 5 per cent annually.

China has been under great pressure to appreciate its currency, as some countries, led by the US, are blaming the country's 'undervalued' yuan and excessive current account surplus for global trade and economic imbalances.

Yuan could move 3-5% a year