But the situation was not given enough attention by the Japanese government, which introduced further financial and property policies to drive up the market.

The property market fell apart in the 1990s, leading to "the lost 10 years" of economic stagnation. The Japanese economy did not recover from the nightmare until the end of 2005.

"Different from Japan, the Chinese government has adopted many macro regulatory measures in the sector since 2005, with good results," the report said.

"However, the measures have not dealt with all the possible risks. China still has a lot in common with Japan at that time."

The renminbi currently faces further appreciation pressure. Under a low interest-rate policy a great deal of capital flows to the property market.

"The government should not be deluded by the stable commodity price index, as price growth was also nearly zero in Japan in the middle and late 1980s," the report said. "China should avoid the asset bubbles brought by national macro strategic adjustment."

Enhancing interest rates will inevitably be another step in the country's macroeconomic controls, said Wu Jinglian, a renowned economist with the Development Research Center under the State Council, earlier this week.

The bull-run of the stock market saw overall capital injected into the A-share market hit 677.9 billion yuan ($84.5 billion) at the end of 2006, more than three times the amount at the beginning of the year.

"There is at least 30 trillion yuan ($3.75 trillion) in surplus fluid capital on the Chinese market, and this has heated up the real estate sector and the stock market." He called on the government to foster a market-based adjustment for major economic factors instead of introducing more control measures.

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