The cabinet Wednesday declared its readiness to use a combination of tax, credit and land policies to ensure the healthy development of the real-estate industry, which many economists say is showing signs of overheating.

A foreigner looks at models of residential buildings at a property company's sales office in Shanghai. In China's richest city, the foreigners live in the inner ring, outsiders in the next and natives in the outermost. [China Daily]

An executive meeting of the State Council chaired by Premier Wen Jiabao vowed to take necessary measures to improve the property market and curb price rises in major cities.

After earlier macro-economic policies brought "the momentum of high investment growth and house price rises basically under control," the meeting zeroed in on remaining problems.

But "housing prices are still rising too fast in some major cities," the meeting warned. "And order is yet to be restored in the property market."

So tax, credit and land supply policies should be allowed to play a bigger role in guiding the market, according to the meeting.

While it is yet to be seen what tax measures will be introduced, the People's Bank of China (PBOC), or central bank, raised its one-year benchmark lending rate by 27 base points to 5.85 per cent in April.

Many economists expect the PBOC to take further measures to cool the sizzling economy, which grew 10.2 per cent in the first quarter.

"A moderately tight monetary policy, as seen from the central bank's rate hike, serves as a timely dampener on the housing market; so would any new tax and land supply policies," said Han Meng, an economist with the Chinese Academy of Social Sciences.

Property prices in 70 large- and medium-sized Chinese cities witnessed an average 5.5 per cent increase in the first quarter from the same period in 2005, according to the National Bureau of Statistics.

Other measures that the State Council has vowed to pursue include a housing supply structure more skewed to low-income households and a better information disclosure mechanism.

The emphasis on housing development, the meeting pledged, will be on small- and medium-sized affordable and rental units.

At the end of April, 40 major cities reported 1 million units in the market with a floorage of 120 million square metres; but of those, only 12,000 units were smaller than 60 square metres each, according to Ministry of Construction.

The development of the real-estate sector and housing construction, the State Council circular said, "should take into full consideration the country's basic conditions, such as its large population and small land mass on a per capita basis."

Demolition of old urban housing should be properly paced to reduce the demand for housing, the meeting added, stressing the importance of a healthy housing sector as "a pillar industry" of the economy.

"The policies that the government has promised to introduce have long been debated. This is a strong signal that Beijing will not let the housing market go astray," said Yi Xianrong, a research fellow at the Chinese Academy of Social Sciences and a long-time critic of land developers.