China will have to strike a balance in sustaining economic development as it has to achieve a growth of 10 percent while controlling inflation within 6 percent to 7 percent this year, a renowned economist said.

Cheng Siwei, former vice chairman of the Standing Committee of the National People's Congress, said the current economic conditions in the country are much better compared with two months ago when the global economy faced huge uncertainties and the domestic inflationary pressure kept rising.

"Now the government has fine-tuned policies from preventing an overheated economy to maintain a relatively fast growth, and the inflation rate has shown a tendency to ease. They are good signs that the Chinese economy is still on the right track," said Cheng, who was quoted by the Shanghai Securities News.

He predicted China can grow 10 percent this year while the inflation rate can be controlled under 7 percent, and these will lay a good foundation for next year's growth.

China's gross domestic product rose 10.4 percent in the first half, easing from 11.9 percent last year. The Consumer Price Index, the main gauge of inflation, has moderated to 6.3 percent in July and helped to drag down the figure for the first seven months to 7.7 percent.

Meanwhile, to stabilize the economy, Liu Mingkang, chairman of the China Banking Regulatory Commission, said policy makers should be very "prudent" in using interest rates, exchange rates and the reserve ratio to soak up excess liquidity in the financial system.

Since last year, China has raised the reserve requirement ratio 16 times to a record 17.5 percent and boosted interest rate six times. The central bank has not increased the interest rate so far this year.

"The record reserve ratio has already squeezed liquidity at many smaller banks and thus hurt small and medium-sized enterprises which are their major borrowers," said Liu.

To prevent a sharp and long-term economic slump, economists suggested the government should boost investment, consumption and trade – the three major engines.

China has slowed the yuan's gains, eased lending curbs and increased tax rebates for exports of textiles and garments after four quarters of slowing economic growth.

(Shanghai Daily September 5, 2008)