The author Hu Shaowei is an economist with the State Information Center

Policy tightening will probably be on the minds of many in the second half of the year.

After the key economic indicators were released early last month, people were not surprised to see that all but one economic figure was on high-speed growth. The trade surplus, the consumer price index, property prices in big and middle cities and industrial output were all climbing quickly by the end of May.

Many were alerted by the potential indication of the numbers. At a meeting of the State Council held on June 13, Premier Wen Jiabao and his colleagues pointed out that due attention must be paid to looming problems in the economy. Measures should be taken to step up macro control to prevent possible overheating of the economy. Both monetary and fiscal policies would be tightened to assist such an effort.

Of course, adjustments to the policy will bear some fruit in reducing inflation pressure, regulating industrial output and promoting imports to check the trade surplus. However, people expect too much from macro policies.

Under the current situation, macro controls bear a weakening effect on the economy. And the traditional way of economic adjustment may not be good medicine to cure a headache.

A tightened monetary policy will hardly check the excessive liquidity. The central bank has raised the requirement for deposit reserves several times in order to reduce liquidity in commercial banks.

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Raising the requirement rate causes less of a shock to the economy than issuing central bank notes while having the same effect on liquidity control.

However, the central bank would have to pay commercial banks for the reserve fund. Commercial banks would probably be motivated to make such deposits to get interest. Thus, deposit reserves would no longer function as a policy tool for cutting down money supply from the bank.

The current excessive liquidity is not peculiar to China, other countries are also suffering from it. But in China's case, the cause is the imbalance of its international payment, especially the growing trade surplus in recent years.

Admittedly, the trade surplus is a result of the international industrial transfer, low labor costs and the changes in the exchange rate of the renminbi. But a more substantial reason for the trade surplus is the high saving that has gone far beyond the investment.

The runaway growth in investment is unlikely to be reined in with regular policy tools. In recent years, capital investment has been lucratively profitable. With a few exceptions, the sector has shown a 30 percent growth in net profit every year. Businesses have no reason to cut down investment with such encouraging rewards.

The fact that policy tools lose their efficiency originates from many elements, the key being a lopsided structure in income redistribution among different sectors of the nation.

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