A senior economist with China's top planning agency is recommending the government provide incentives for the country's home buyers and raise its warning level on a key inflation indicator with a prediction of further steep price rises next year.

China's consumer price index (CPI) would likely rise 4.3 percent for the whole of this year, exceeding the government-set alarm level of three percent, Wang Xiaoguang of the National Development and Reform Commission (NDRC) predicted on Tuesday.

The key inflation indicator would likely rise 3.5 percent next year, said Wang, head of the economic operation and development section of the NDRC's Research Institute of Economy.

He suggested the government raise the annual warning level to four percent. Observers believe factors behind the mounting inflation in the second quarter of this year would continue to affect the economy next year.

China's CPI rose 6.5 percent in August, which was a direct result of price hikes for foodstuffs. A short supply of pork, which was due largely to a disease outbreak in some areas, contributed significantly to the price hikes, but it is believed food prices are likely to stabilize.

However, Wang also emphasized that the government's macro-economic control efforts should focus on runaway real estate prices instead of prices of consumer goods.

Measures should include incentives for people to buy their own homes, while home buying for investment should be brought under rigid control.

He also recommended purchases by foreigners be strictly restricted and a taxation policy for real estate should be drafted as soon as possible.

It has been widely reported in China that speculators from abroad have helped shore up long-term, excessive price hikes on housing, threatening the stability of the financial sector and even of the national economy.

Wang forecast gross domestic product (GDP) would reach 24.3 trillion yuan for the year, representing a real-term growth of 11.5 percent over last year. The growth rate would be 0.4 percentage points higher.

Fixed assets investment would increase by 29 percent year-on-year to 12.1 trillion yuan. The trade surplus would reach 257 billion U.S. dollars at least, Wang predicted.

Next year would see China's GDP exceed 28 trillion yuan, up 11 percent at least. Fixed-assets investment nationwide would amount to 15.1 trillion yuan, up 25 percent, while retail sales would reach 10.5 trillion yuan, up 16.5 percent. The trade surplus would increase to 308.4 billion U.S. dollars. The unemployment rate would be below 4.5 percent.

(US$1 is equal to 7.5010 yuan)

(Xinhua News Agency October 24, 2007)