Chinese Premier Wen Jiabao sent out a warning call on Wednesday that China will tighten policy further to prevent the economy from overheating and to keep inflation in check.

In a statement issued following a regular meeting of the State Council, or cabinet, Wen said rising upward pressure on prices was one striking problem facing the economy, along with excessive liquidity in the financial system, runaway investment growth and an oversized trade surplus.

To address those challenges, Beijing would appropriately tighten monetary policy, adjust export tax rebates on some products, and place strict controls on approvals of new investment projects, among other measures, Wen said.

We have to continue to enhance and improve macroeconomic controls in order to effectively prevent the current relatively fast economic growth from changing to overheating, Wen said.

His comments, which come amid heightened expectations among analysts that authorities could raise interest rates or otherwise tweak policy soon, were broadcast on state television and later published in more detail on the central government's Web site (

A robust batch of economic data for May has reinforced the picture of an economy that is refusing to slow down despite a series of tightening moves in past months -- including four interest rate rises in the past 14 months.

The trade surplus climbed more than 80 percent in the first five months from the same period a year earlier, consumer inflation in May hit a 27-month high of 3.4 percent, and banks continued to extend new loans at a rapid clip.


Wen said it was a priority for the government to trim its large trade surplus. Both Washington and Brussels have been pressing it to take measures towards cutting that gap, which reached $177.47 billion last year.

Much of that pressure has focused on prodding Beijing to let the yuan strengthen more quickly.

U.S. senators are scheduled to unveil two bills on Wednesday, taking aim at what they see as China's unfair practice of holding down the value of the yuan to boost exports.

Wen did not mention the currency, but said that China would tweak its system of export taxes and of value-added tax rebates for exports, and would also take further measures to encourage imports. He gave no further details of what they would entail.

Market sources widely expect Beijing very soon to cut or scrap tax rebates on a range of exports, including some steel and metals products, as well as some textiles and shoes.

That would follow a series of such changes over the past two years. Most recently, on June 1, Beijing began imposing taxes of between 5 and 10 percent on exports of more than 80 types of steel products. It has also recently reduced or scrapped value-added tax rebates on a range of energy-intensive products.

Wen said that the government would use fiscal and monetary policy to alleviate the problem of excessive liquidity, and widen the channels for capital to flow out of the country -- which would ease the upward pressure on the currency.

He added that authorities would take steps to crack down on irregularities in the supply of food, as a way of maintaining price stability.

A recent surge in the price of pork and eggs helped to push up consumer inflation last month, prompting Wen to visit a market in the northwest of the country to highlight the government's concern.