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Chinese Gov't Concerned About 'Excess Growth' in Economy

Leaders in China have expressed further concern the country's economy is on the verge of overheating as prices rise sharply. Some economists say growth might be best controlled by revaluing China's currency.

China's state owned media carried comments by Chinese Premier Wen Jiabao and central bank Governor Zhou Xiaochuan on Monday saying that over-investment and inflation threaten the country's economy.

The consumer price index in China rose by 3.2 percent in January - its highest level since 1997. China last faced the problem of quickening inflation during a building boom in the mid-nineties. When the real estate market collapsed, growth declined sharply.

The government fears that excess growth, estimated to have been over 10 percent, could destabilize the country's weak banks, and cause shortages of basic goods and electricity.

Mr. Wen also said exchange rates for the renminbi would remain "basically stable" and indicated it would not likely be changed any time soon.

The renminbi, also referred to as the yuan, has been fixed at about 8.3 to the U.S. dollar since 1994.

Craig Chan, the top economist for the Singapore branch of research group Forecast, thinks Chinese leaders may need to consider changing the exchange rate.

He says that if China can not control the rapid growth in credit by tightening bank lending, then its best option will be to allow the currency to float in a tight trading band.

"Really no one knows what their definition of 'basically stable' means - one percent appreciation or two percent can be defined as 'basically stable,'" he said. "I personally believe that their revaluation pressures are extremely strong at this point in time."

Mr. Chan says China's inflation is more serious than the CPI portrays, as manufacturing costs have seen bigger rises for some time.

He says that although China could raise interest rates, making borrowing more expensive, that would also put increase pressure to raise the value of the renminbi.

China has been under pressure from the United States and other countries to revalue its currency. U.S. manufacturers says the low renminbi value gives Chinese companies a competitive advantage and is making the U.S. trade deficit with China worse.

The Beijing government has been trying to slow down the property market and growth in industrial capacity to keep the economy from overheating.