China needs to extend interest rate increases and allow the yuan to gain by about 5 percent annually to combat inflation and avoid fuelling asset bubbles, said Li Daokui, a central bank monetary policy committee member.
"Rate increases are necessary," Li said in an interview with The Bloomberg at the World Economic Forum in Davos, Switzerland, on Wednesday. "We should gradually increase rates in the first and second quarter."
Li said rising real-estate prices are the "biggest danger" to China's economy, "a thousand times worse than inflation."
The Qinghua University economics professor suggested that China raise the value of the yuan rise by an annual 5 percent to help rein in inflation. While an annual gain of 5 percent to 6 percent in the yuan is acceptable, any "excessive" appreciation would hurt Chinese exporters, said Li.
China won't suffer a "hard landing," Li said. Its economy will grow about 9.5 percent this year and the average inflation rate will be between 3.8 percent and 4.0 percent, he forecast.
China's economy expanded 10.3 percent in 2010, the fastest pace in three years, according to the nation's statistics bureau. That compared with growth of 9.2 percent in 2009.
