"China's exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move," Yao said.
"We were wronged."
Yao's comments, which came on the same day that state media issued a number of commentaries defending China's policy making, show Beijing's sensitivity to suggestions it may have fumbled economic policy. The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy.
Many analysts, however, say a key factor roiling markets is concern that China's economy might be slowing sharply despite Beijing's efforts. That could have a significant impact on global growth, hitting company earnings and reducing demand for commodities.
Yao said China's economy remains on a sound footing, though some emerging market economies face a possible financial crisis in the years ahead stemming from liquidity stresses if the United States raises interest rates.
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"So we hope the Federal Reserve could further delay its interest rate rise, giving emerging markets ample time to prepare. The Fed should not only consider the U.S. economy, but should also consider the global economy which is very fragile," he said in an exclusive interview.
The Fed, which has been prepping investors for a possible rate hike, declined to comment.
Fed policymakers acknowledge their actions can stir global markets, but argue they aren't stewards of the world's economy.
Market turmoil "is not a U.S. problem," New York Federal Reserve Bank President William Dudley said on Wednesday.
Dudley said the sell-off was sparked by "developments abroad," although Kansas City Fed chief Esther George said on Thursday the U.S. central bank helped set the stage by pumping trillions of dollars into the banking system in recent years.
Policy insiders have told Reuters that China has been so surprised by the global reaction to its yuan devaluation that it's likely to keep the currency on a tight leash in the near-term to head off any currency war that could spark a broader financial crisis.
Yao said the yuan is likely to see two-way moves in the near term and may resume its appreciation over time. "The (yuan) exchange rate will be basically stable with two-way volatility. We cannot rule out the possibility of yuan appreciation after 2-3 years."
Still on track for 7 percent growth
The surprise yuan devaluation of nearly 2 percent on Aug. 11 stoked global concerns about slowing growth in the world's second-biggest economy, coming just days after poor trade data.
But Yao shrugged off concerns about a possible 'hard landing' in China, saying growth was still underpinned by more resilient services and consumption. "China's economy is in good shape. I'm very confident full-year growth will reach 7 percent," he said.
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Many economists fear China may miss its 7 percent annual growth target as recent data showed the economy, which officially grew at 7 percent in the first half, has lost steam.
A U.S. rate increase next month now seems less appropriate given the threat to the U.S. economy from the recent market turmoil, Dudley said on Wednesday.
China has plenty of policy room to cope with expected liquidity strains following any U.S. rate rise, Yao said, though he did not explain why he still urged the Fed to delay any move.
"China has sufficient policy room and adequate policy tools to respond," he said.
The People's Bank of China (PBOC) cut interest rates on Tuesday and lowered the amount of reserves that banks must hold for the second time in two months, ratcheting up support for a stumbling economy and a plunging stock market.
The yuan's inclusion in the International Monetary Fund's currency basket, known as Special Drawing Rights (SDR), will help ease a shortage of liquidity globally, but may not happen for another 20 years due to China's sustained current account surplus, Yao said.
"China's high savings rate means China cannot provide liquidity to the world via the current account right now," he said.