The authorities will use a comprehensive fiscal and monetary policy package to improve macroeconomic regulation and rebalance the economy, Hu Jintao, general secretary of the Central Committee of the Communist Party of China (CPC), said.

The authorities will make the banking, securities and insurance industries more competitive and strengthen financial regulation to forestall and resolve risks, he said during his keynote address to the 17th National Congress of the CPC.

The authorities will increase transfer payments across regions and promote a fiscal system that balances administrative tasks and fiscal revenues, he said in the speech.

"All the remarks on macroeconomic regulation show that the direction of regulation will not change," said Zhuang Jian, a senior economist with the Asian Development Bank in Beijing.

Transfer payments, for example, should help resolve the problem of unbalanced income distribution, he said.

He said that while China's economy steams ahead, the market must learn how to ward off potential risks.

"The capital market, which is becoming modernized, remains a new one (compared with those in developed economies), and it is rather fragile," he said.

The new market will see more financial products being developed and more capital flooding in, he said.

"Meanwhile, there will also be risks and lessons should be learned from the international experience to forestall them."

Hu's remarks on the fiscal reforms, which are expected to bring more balance to how revenues are divided between central and local governments, have attracted much attention. Analysts said the move could have a big impact on economic stability as well as the well-being of the public.

"A big problem in this respect is the local governments' drive to sell land to increase their fiscal income," said Ma Hongman, a Shanghai-based economist.

Local governments have been accused of pushing up housing prices nationwide by transferring land use rights to developers on a large scale, he said.

"They can get handsome income from transfers and other development-related taxes."

One explanation for their eagerness to sell land is the shortage of revenue sources, Ma said.

Since the 1994 fiscal sharing reform, local governments have been getting a decreasing portion of the national revenues, experts have said.

They have pocketed in about 45 percent of national revenues while having to shoulder about 75 percent of the national fiscal expenditures, Zhou Tianyong, an economist with the Party School of the Central Committee of CPC, said.

Ma said that if this arrangement were allowed to continue, it would be hard for the central government to implement its tightening measures because "local governments would say they lacked the money to ensure the proper management of local affairs".

(China Daily 10/16/2007 page7)