Policy makers have been quicker to notice the dangers of overheating than they used to be during the current round of macroeconomic adjustments that started in earnest this spring. A selective approach in addressing problems has been agreed upon.

But relatively mild measures have also left room for many unwanted phenomena to make a come-back, which in turn is likely to prompt the government to take new steps and make changes to its recipe in fighting unhealthy economic factors, economists said.

Will the recipe include an interest hike? That has proved much more difficult to predict of the Chinese Government, just as it is tough to predict what the US Federal Reserve might do.

But for economists it is still a tempting question to answer, or they feel, as economists, they have to answer it. At the moment, more are joining the "yes" group.

Economic data from the first three quarters came out over the past two weeks. The figures were not as red-hot as the ones seen in the first quarter. However, September figures were again raising people's eyebrows.

Major indicators should have been declining steadily if things were developing as desired. But many of them were not.

Loans in renminbi issued in September totalled 250 billion yuan (US$30 billion), as compared to 116 billion yuan (US$14 billion) in August. M2, the growth rate of broad measurement of money supply, also accelerated a little bit, from 13.6 per cent at the end of August to 13.9 per cent at the end of September.

Fixed assets investment growth stood at 27.7 per cent year-on-year during the first three quarters, but the figure for September alone is 27.9 per cent, indicating a pick-up in speed in this month.

In fact, some key figures were already coming back as early as in August, when the producers' price index for manufactured goods geared up to 6.8 per cent from 6.4 per cent in July and June.

"If this trend continues, the economy will accelerate," said Tao Dong, chief China economist with Credit Suisse First Boston.

Tao said the resurgence of the overheating threat was partly because the central government let up some of its restrictive measures to ensure that needed projects could proceed.

Many local governments and enterprises took advantage of this and restarted many projects halted in May and June, when the pressure from the central government was stronger.

In addition, after the first months of cooling down, some local governments and local enterprises are again finding their way to circumvent the central government's measures to launch new projects.

"The local governments are constantly in thirst of investing," Tao said. "This is a very difficult problem to deal with under the existing system the officials need beautiful growth figures to prove their competency."

But how can they find the money when major banks are told to refrain from lending to unreasonable projects? The search for an answer to this question has led to a fact that has unnerved the central bank an increasing number of firms are obtaining credits outside the official banking system. In some areas of the country, people would lend their money to businesses instead of putting it into banks.

In Wenzhou of East China's Zhejiang Province, a hub for private businesses, non-official lending has been growing since the beginning of the year. In July, the amount totalled 670 billion yuan (US$81 billion), up 23 per cent from the same month of last year, according to a survey by the central People's Bank of China's Wenzhou branch.

Tao estimated that around 120 billion yuan (US$14 billion) is involved in the non-official system, which is equivalent to 10 per cent of gross domestic product and 0.5 per cent of credits in the banking system.

This is already alarming enough, Tao said.

If this situation deteriorates, it will weaken the authorities' capabilities in making further adjustments, he said.

What is more important is that China's resources could not support the accelerated growth.

Shortage of energy is still there and the inadequate transportation system could not have improved during the past months.

The accelerated growth will only push the price indices higher and put more inflationary pressure on the economy.

Consumer price index (CPI), the key barometer for inflation, has been hovering around 5 per cent since May. Economists agreed that the threat of inflation has not eased up and it would not in the final quarter.

Lots of things are buoying the CPI.

Oil prices are still high, and labour costs in the manufacturing sector are rising.

Grain prices are likely to stay at their current levels despite a bumper summer harvest and rosy prospects for autumn grain.

On Friday, National Bureau of Statistics spokesman, Zheng Jingping, said "the balance of grain demand and supply is still a very delicate one." Any trouble could lead to shortage of grain and send grain prices up, he said.

In addition, price growth of some raw materials such as steel and non-ferrous metals also started to accelerate in August.

All these factors mean the country will still face inflationary pressure. And it is still too early to announce the success of this round of macroeconomic adjustments, Tao said.

"A new set of measures may not be far away," he said.

The administrative measures that the central government has been using this year were controversial. Critics say the government should try more market-based measures.

But renowned economist Fan Gang said lots of investing parties are still not real market-based entities, so market-oriented instruments would not be effective on them.

"Administrative measures are still necessary at this stage of our economic development," he said.

Tao is with Fan. But he stressed that it is not easy to break the local "iron triangle" of local government-local companies-local banks. They collaborate in investing activities. Lots of central government policies can not be implemented properly at local levels.

Instead of relying on levels of local government in passing its messages, the central government may need to send special envoys to local places, as it did in mid-1990s, to ensure its intentions be fully met, Tao said.

Administrative measures are not the cure for all. Market-based measures are also needed.

"We also need a cocktail recipe," Tao said.

The central bank has been spearheading the effort in this regard. Since last year, it has been very active in sounding alarms and taking measures. It raised reserve ratio for commercial banks. It has been issuing hundreds of billions of bills to mop up funds in the interbank market.

Only last week, it drastically raised the number of bills it issued, which is seen as a response to the accelerated growth of loans and money supply. Normally, the central bank would issue several billions to 30 billion yuan (US$3.6 billion) worth of bills in a week. But last week, the issuance totalled 80 billion (US$9.6 billion).

However, the move did not have a notable influence on the interest rate at the interbank market. The repurchase rate, a bench rate at the interbank market, fell instead of going up. This indicated that there is still much liquidity at the fund market.

The central bank still has options in dealing with the situation, it can continue to issue bills, raise the reserve ratio, or raise the interest rate.

An interest rate hike will help attract back the money circulating outside the banking system.

"Interest rates could not be a cure-for-all. But it will at least raise the cost of funds for many investors and prevent them from launching new projects," said Tang Min, chief economist for the Asian Development Bank's mission in Beijing. Enditem