Chinese economy would overheat if the issue of excess liquidity could not be solved substantially, a senior Chinese official said on Wednesday.

Speaking on the first day of the International Finance Forum in Beijing, Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress (NPC), said the excess liquidity currently remains a major issue in the Chinese economy, calling for effective measures to deal with it and prevent it from causing the economy to overheat.

"Capital coming from bank deposits, forex reserves and hot money from overseas have raised the consumer prices and pushed up both the property market and the stock market at the same time, which traditionally move in opposite directions," said Cheng, who is also a leading economist.

"China is taking monetary measures to curb excess liquidity," said Cheng, but he admitted that the policies of raising the reserve requirement ratio, interest rate and the securities stamp tax have not brought about "satisfactory results".

China should further expand the capacity of the stock market by encouraging companies listed overseas to go public in the domestic market, as well as accelerating the listing of profitable domestic companies, said Cheng.

China has brought back three of its state-owned giants, China Construction Bank, China Shenhua and PetroChina, to list on the Shanghai Stock Exchange in recent weeks.

Cheng also advised the government to diversify its forex reserves and gradually release more forex from national reserves to domestic companies and individuals.

(Xinhua News Agency November 8, 2007)