SHANGHAI, July 9 -- CHINA'S currency will likely continue to strengthen for "at least five years," given the government's reluctance to allow rapid gains, a former monetary policy adviser to the nation's central bank said.

"The Chinese government doesn't want fast appreciation of the yuan; therefore the process of its appreciation will likely last for many years," Yu Yongding, a former member of the People's Bank of China's monetary policy committee, said in Beijing on Saturday.

Plans to relax controls to allow greater movement of money out of China may not have the result the government desires, said Yu, now head of an institute under the Academy of Social Sciences. The steps may "encourage capital inflows rather than prevent them, particularly inflows of speculative capital," he said in remarks prepared for a forum on the Asian financial crisis.

A record trade surplus is flooding China's financial system with excess liquidity, adding to upward pressure on the yuan and threatening to push up inflation and lead to bubbles in the stock and property markets. The government is easing curbs on the flow of money out of China to ease the pressure, while tightening controls on short-term inflows of cash, Bloomberg News reported.

While there are "very big loopholes" in the nation's capital controls, China does have the power to increase the cost of cross-border movements in funds, which would give it greater control, Yu said.

Relaxing curbs on outflows may have the effect of inviting money from abroad for speculative investments in China because the cost of repatriating this money when the economy worsens will have been reduced, he said. Most of the speculative capital that has entered China has ended up in the property and stock markets, Yu said, without estimating the size of these inflows.

China has broadened the investment scope of qualified domestic institutional investors in overseas financial markets and encouraged overseas direct investment by local companies.

The nation's trade surplus surged 74 percent to US$177.5 billion in 2006, and foreign exchange reserves have surpassed US$1.2 trillion, the largest held by a single nation.