Xinhua reported that China should adopt quantitative tools or conduct more rate hikes in its battle against inflation.

Mr Xu Xiaonian a professor at China Europe International Business School said he expects more interest rate hikes in order to solve lingering inflation.

He said that "China still faces tough inflation in the second half of this year, due to the excessive money supply in the past two years, which is still expanding at a rapid growth."

He added that only by putting an end to the current actual negative interest rate can inflation be solved.

But Mr Fan Gang a former senior advisor to the People's Bank of China or the central bank expressed concerns that higher interest rates could attract more hot money inflow which could threaten the development of emerging economies.

Mr Fan said China should make full use of the central bank bill which is more flexible for commercial banks as a way to regulate market liquidity. He said that with excessive money supply and continuing hot money inflow that pushes up China foreign exchange reserves, this is the only way to keep market liquidity under control.

Nearly CNY 20 trillion in new loans were extended over the past two years as part of the government crisis combating stimulus package. In July China new lending stood at CNY 492.6 billion.

(Sourced from Xinhua)