The Consumer Price Index rose 5.3 per cent in August, the same as in July, and the highest increase rate since February 1997.

This exerts pressure on the People's Bank of China, the central bank, to raise interest rates, but Professor Ba Shusong from the State Council's think tank says this is not the only source of pressure pushing the central bank to raise interest rates.

" We can see investment volume sharply rebounding from July, with prices of real estate and steel hiking again. It reminds us that something more should be done to consolidate the good results of the macro-control policy implemented from the end of last year."

Professor Ba Shusong explains that, as early as this April, positive effects were seen in the control of bank loans and investment in some over-heated industries. However, we see factory production increased by nearly 16 percent in August, after five months of continuous decrease. This warns that direct administrative methods might not be working as they did.

If the government plans to continue its present policy without the market playing its part, the professor believes China will need a longer time than expected to realize its macro-control goals.

In addition, with the renminbi being closely tied to the US dollar, the US starting to raise its interest rate puts more pressure on China to do the same.

Professor Ba Shusong gives his opinion on what China should do in the near future.
"I believe it's the right time now for China to make the move. The detailed methods can cover many aspects, for instance, adjusting interest rates to a certain level, giving the market a role in deciding the rates, and continuing to expand interest rate fluctuation margins."

If interest rates rise, some industries will be greatly affected, especially those which rely heavily on loans, like the real estate market. But Professor Ba Shusong stresses that interest rates should objectively reflect the capital supply and demand situation.