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By Xin Zhiming (China Daily)
Updated: 2007-07-31 08:39

The 0.5 percentage point hike in the banks' reserve requirement ratio is expected to absorb as much as 150 billion yuan ($19.8 billion). "It will play a role in reducing liquidity," said SIC's Zhu.

Special coverage: Interest Rate Hike Related readings:  CPI to rise 4.5% in 3rd quarter  Bank reserve ratio up to curb liquidity  China raises bank deposit reserve ratio, 04/2007  Statutory bank ratio hiked again  Central bank raises deposit reserve ratio

But Renmin University's Zhao said the country will ultimately need to reduce its foreign trade surplus.

The government has started to reduce or remove export rebates for more than 2,800 products, effective from July 1, in an effort to dampen exports and narrow the trade surplus.

Zhao also suggested that the corporate bond market be promoted so that enterprises can issue bonds more easily to raise capital.

"This will also help cut liquidity in the market."

Currently, the corporate bond market is estimated to account for only a very small slice of the capital market. "It is almost negligible," Zhao said.

The central bank has also raised interest rates thrice this year.

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