China's economy is moving towards a 'soft landing' but the government must not ease up on its macro control measures, accoding to a state think tank under the National Development and Reform Commission.

Although July data are hardly grounds for determining a shift, 'various signs in August indicate that the earlier macroeconomic tuning measures have started to take effect,' pointing to a soft landing, the Academy of Macroeconomic Research said.

'The effects are just preliminary. Investment growth is still too high and it is difficult to eliminate the ripple effect of overheating investment. We must not relax macro control measures,' the report said.

China has raised interest rates and reserve requirement for banks twice since late April to rein in rapid growth in credit and investment and introduced a slew of new policies to cool certain overheating sectors, including real estate.

Urban fixed asset investment slowed dramatically in July and August, after hitting peak growth of 33.7 pct in June, the state think tank said in a report published in the official China Securities Journal.

The report forecast investment growth to continue to slow in the coming months, but growth for the whole year will remain at a relatively high levels.

The FAI growth rates for July and August were 27.4 and 21.5 pct respectively, 6.3 and 5.9 percentage points lower than the previous month.

The rapid growth in credit is also easing, the report said.

The broad measure of money supply, M2, grew 17.9 pct year-on-year at end-August, the lowest level since the beginning of the year and 0.5 percentage points slower than in the previous month.

New loans in the banking system for 2006 are expected reach more than three trln yuan, after hitting 2.5 trln in the first eight months to August, according to the report.

The central bank set a full year target of 2.5 trln yuan for loan growth at the beginning of the year.

In the next phase authorities should continue to limit excess growth in fixed-asset investment, control new projects and clear up those under construction, and tighten regulation on land use, the report said.

It also urged the government to step up adjustments in the real estate market to limit speculative investment and high property prices.

The authorities should continue to tighten liquidity by further raising reserve requirements for banks or interest rates when necessary, it added. 

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