The fifth and final year of Yao's contract includes an early termination clause giving him the right to opt out and become an unrestricted free agent Wednesday night, which he will not do.
"My decision is very clear, I am going to stay with the Rockets," Yao said. "Why? Because everything we've done in the past I feel very comfortable with and also I believe our GM (Daryl Morey) will bring us more talent for helping us build a championship team."
Yao will make $17.69 million during the 2010-2011 season.
He did not play last season after undergoing reconstructive surgery on his left foot last July. The injury is a major reason why Yao has waited until now to make his decision.
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