"China's central bank is concerned with the current fluctuation of asset prices; however, it will not implement control measures targeting the fluctuations," said Wu Xiaoling, vice governor of the central bank, at a financial forum hosted by the leading financial magazine Caijing.

She stressed that prudent and moderately tight monetary policies are conducive to the sound development of the capital market.

The central bank needs to put money market interest rates within a bracket and will adopt various monetary tools to absorb liquidity based on the interest rate adjustment, Wu explained.

"Issuing special treasury bonds is another tool that can absorb excess liquidity. There is no need for the market to panic," she said.

In an open market, the issuance of special treasury bonds and central bank bills to control base currency has the same effect. In China the central market must serve as the operator in order to keep the macro-goals of interest rates and foreign exchange rates consistent.

Whether to choose an open market tool or the deposit reserve ratio is dependant on their impact upon the market interest rate, Wu said.

For more details, please read the full story in Chinese (http://www.china-cbn.com/s/n/000002/20070914/000000078778.shtml).

(China.org.cn September 14, 2007)