By Xin Zhiming (China Business Weekly)
Updated: 2007-11-26 07:26

Despite a range of measures to keep the economy expanding in a balanced way, national policymakers must be feeling some stress as almost all indicators point blistering growth.

The gross domestic product expanded by 11.5 percent in the first three quarters year-on-year.

The consumer price index (CPI) grew by 6.5 percent in October, matching the decade-long high reached in August.

Urban fixed-assets investment growth hit 26.7 percent year-on-year from January to October. Real estate investment rose by 31.4 percent.

Despite a recent drastic correction, the Shanghai Composite Index still nearly doubled thus far this year.

Increasing bank loans and piling up foreign exchange reserves continue to stoke the fire.

Premier Wen Jiabao said last week China should prevent its economy from becoming overheated and avoid structural price increases evolving into overall inflation.

It has been interpreted as a sign of further tightening is in the pipeline.

"Investment has been the main culprit for the rapidly expanding economy," says Chen Jijun, senior macroeconomic analyst with Beijing-based CITIC Securities. It will be the target of macroeconomic regulation next year, he says.

But there would not be a blanket effort, he says.

"The overall growth will remain fast and stable," he tells China Business Weekly.

Authorities may rein in investment in sectors that consume large amounts of energy and resources while promoting such industries as services, agriculture and those that help the environment - a strategy to implement the official Scientific Outlook on Development".

Sun Mingchun, an economist with Lehman Brothers, says a structural adjustment will help the economy to have a soft-landing.

"If tightening measures are targeted at investments into sectors which already have overcapacity problems, it would actually help prevent an even harder landing in the years to come," he tells China Business Weekly.

Such a regulatory posture would also help the banks, he says. "It will help reduce the chance of more non-performing loans in the future."

Yet if the tightening measures are more broad-based - such as interest rate hikes - it could make things worse if they were coupled with a sharp slowdown in the global economy, Sun warns.

"So at this stage, it is very important the government be forward-looking and make policy decisions that are targeted toward certain sectors."

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