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China plans to loosen reins on its economy

China will phase out measures aimed at reining in the overheating economy amid fears that the tough controls may lead to a hard landing, a press report said yesterday.

Citing unnamed sources, the South China Morning Post said Beijing was expected to announce a decision to "adjust" its macroeconomic controls either later this month or early next month.

The announcement would be made during the annual national economic conference to plot growth targets for next year, it said.

At the conference, top government officials are expected to declare "preliminary success" in curbing runaway fixed-asset investment and bank lending.

They will likely stress that the planned withdrawal of administrative measures does not signal a relaxation of all macroeconomic controls, the newspaper said.

They are also expected to announce that macroecono-mic controls in general will remain a medium- and long-term policy to prevent the economy from overheating again.

Despite the short-term success of the measures, an increasing number of local officials and economists have warned that the controls could become counterproductive if they were not relaxed.

"The real situation is worse than what the official data has suggested," one source was quoted as saying.

"Many banks have largely stopped lending for fear of breaching the central government's rules and this is not healthy," the source said.

The sources said policymakers had become less concerned about strong inflationary pressures, which may actually benefit rural areas.

"Inflation is mainly driven by rising food prices but this is good news for the country's millions of far-mers," one source said. "The government does not want grain prices to drop just as it is planning to boost the living standards of farmers."

Since the middle of last year, China has issued a series of administrative regulations aimed at cooling investment, particularly in overheated sectors such as steel, aluminum, cement, property development and car manufacturing.
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