China should tighten liquidity further -institute

SHANGHAI, July 4 (Reuters) China should further tighten liquidity in its money market and if necessary consider imposing special taxes to rein in surging investment, a leading economic research institute has proposed.

Although the overall economy continued to grow at a healthy pace in May, overheated investment was ''worthy of great concern'', the Academy of Macreoconomic Research said in a report published by the official China Securities Journal on Tuesday.

It suggested that the central bank step up open market operations to absorb excess funds from the money market. In recent weeks, the central bank has absorbed an increasing amount of money through market operations and a hike in banks' reserve requirements, though liquidity has remained ample.

In addition, ''if necessary we could consider levying temporary, targeted taxes on fixed asset investment, to restrain excessive investment and improve the structure of investment,'' said the academy, which is part of the National Development and Reform Commission, the nation's top economic planning body.

The report is the latest in a series of calls by Chinese official economists for stronger action to tighten monetary conditions and curb investment, particularly in the booming property sector. On Monday, an economist at the Chinese Academy of Social Sciences urged higher bank lending and deposit rates.

In the long term, the Academy of Macreoconomic Research said China should stabilise its economy by strengthening the administration of its local governments through reforms to taxation, bond issuance and land policies.

At the same time, the academy said, reforms to the financial system and the foreign exchange system should be accelerated -- an apparent reference to allowing the yuan to appreciate more freely. Yuan appreciation could help to tighten monetary conditions.

Reuters DH VP0625