China's Premier Wen Jiabao said the government must do more to rein in lending and curb inflation in the world's fastest-growing major economy, a sign the central bank may raise interest rates for the seventh time in a year.

``Financial controls need to be strengthened, and the excessively fast growth in money supply and lending should be curbed,'' Wen told almost 3,000 lawmakers in his two-hour report to the National People's Congress in Beijing Monday.
Wen, embarking on a second five-year term, said overheating remains the government's biggest challenge even as a global slowdown threatens export demand.
China's stocks fell on concern the central bank will raise borrowing costs or bank reserve requirements to tame inflation that's at an 11-year high.
``They want to bring down inflation without killing growth,'' said Leslie Phang, Singapore-based head of investment at Schroders Private Clients. ``Interest rates will likely be raised, but not at the pace of 2007.'' The CSI 300 Index closed down 0.9 percent in Shanghai.
China aims to cap this year's inflation rate at 4.8 percent, the same pace as in 2007, and prevent a shift ``to overheating from relatively fast growth,'' the premier said. Inflation was 7.1 percent in January as food and fuel costs surged.
------Global growth
Wen set an 8 percent growth target for 2008, in line with the nation's five-year plan.
Rising global ``uncertainties'' include the U.S. subprime crisis, the weak dollar, and high oil and grain prices, the premier said. Liu Mingkang, chairman of the China Banking Regulatory Commission, and Vice Commerce Minister Wei Jianguo expressed concern at the outlook for China's exports.
The economy expanded 11.4 percent in 2007, the fastest pace in 13 years, and accounted for 20 percent of global growth, according to an International Monetary Fund estimate. The IMF expects world growth to slow this year on tighter credit and the housing slump in the U.S.
Soaring food costs hurt the 300 million people estimated by the World Bank to be living in poverty in China. The government has imposed price controls on staples such as meat, eggs and noodles, and Ma Kai, the chairman of the top economic planning agency, said today that a freeze on energy prices will stay for the ``near term.''
China should raise rates to curb inflation and prevent asset bubbles, Justin Lin Yifu, the World Bank's next chief economist said yesterday. Inflation is outpacing returns on bank deposits, fueling property and stock investment.
----------Property, stocks
Property prices rose in December at the fastest pace since at least 2005. After retreating 15 percent this year, the CSI 300 Index has still more than doubled since the start of 2007.
China will increase welfare payments to help shield the poor from soaring food costs, according to Wen's report. The central government plans a 31 percent increase in spending on agriculture and farmers in 2008 from a year earlier, a boost to rural incomes that are a third of those in the cities.
The premier has unexpected extra cash to prime the economy if necessary. Fiscal revenue was 16.4 percent, or 724 billion yuan ($101 billion) higher than targeted last year, Wen said.
The government forecasts a 14 percent increase in revenue this year, Finance Minister Xie Xuren said in a separate report.
-------`Tight monetary policy'
China will maintain a ``tight'' monetary policy, use reserve requirements and bill sales to soak up cash, make ``appropriate use'' of interest rates, and increase the yuan's flexibility, Wen said.
``The rhetoric is still of a `tight' bias but he also emphasized that the external environment has become more complicated and that there are downside risks,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ``They are striking a delicate balance.''
Wang said he doesn't expect any rate increases this year ``but I also realize this is a close call.'' China's key lending and deposit rates are 7.47 percent and 4.14 percent. Banks are required to set aside 15 percent of deposits as reserves.
``I suspect China will relax controls in the second half as the outlook, including exports, becomes more uncertain,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``But if growth continues to be fast and inflation surprises on the upside, they will need to raise rates.''
The government has allowed faster gains in the yuan this year, cutting import costs and pushing up export prices, after a record trade surplus pumped $262 billion into the financial system in 2007.
The currency has risen almost 3 percent versus the U.S. dollar, after gaining 7 percent last year. It closed today at 7.1081 versus the dollar, near the highest level since a fixed exchange rate was scrapped in 2005.
China's expansion may slow to 10.5 percent in 2008 as export demand weakens, according to the State Council Development and Research Center. Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong, expects 9.8 percent growth.
The central government today forecast a 2008 budget deficit of 180 billion yuan, a narrowing from last year's 200 billion yuan gap.
(Source: Bloomberg)