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This paper argues that a nominal appreciation of renminbi should be eschewed because of China's existing trade structure, financial fragility and macroeconomic imbalance. Instead, the renminbi's valuation issue can be dealt with effectively using a structural and macroeconomic approach by first reducing distortionary export subsidies and gradually removing excessive fiscal incentives granted to FD1-founded firms in the short term. In the medium term, the renminbi's valuation issue can be addressed via reflation: expansionary fscal policy with a focus on rural infrastructure investment accommodated by supportive monetary policy. Finally, the paper emphasizes that such investment has to be incentive compatible by involving local government and private initiatives aided by the development of China's local government or municipal bond market.