CHINA urgently needs to widen its range of financial institutions and instruments if it is to end its stop-go cycle of economic development, according to a leading official of the International Monetary Fund (IMF). Deputy managing director of the IMF, Alassane Ouattara, said in a written presentation that without these the authorities had to rely on administrative measures for economic stabilisation. 'As experience in China - and elsewhere - has often shown, such measures can impose abrupt and, at times, excessive restraint on the economy, creating in turn, pressures for excessive relaxation,' he said yesterday at the International Herald Tribune/SCRES China Summit. These cycles meant China had repeatedly lost its battle with inflation, Mr Ouattara said. He said that the IMF had recently completed consultation with China on its macroeconomic stabilisation during its move towards a more market-based system. 'Our discussions with the authorities have focused on the monitoring and analysis of economic developments and policies,' he said. He said the IMF recognised China was intensifying its efforts to develop indirect monetary instruments, and said the fund was helping to develop a phased programme for greater interest rate flexibility. This was essential to the controlling economic policy through market-based instruments, he added. Mr Ouattara supported other economists' warnings that the structural problems facing China were crucial, especially those relating to the state-owned enterprises. 'Apart from misallocating resources - both real and financial - this has constrained the effective implementation of financial policies and hindered the full development of the financial system,' he said. He also said because the development of the legal and regulatory framework lagged behind the increasing reliance on market forces, an uneven system had emerged which lacked clear distinctions between the rights and obligations of market participants. Mr Ouattara said the IMF welcomed the ending of direct government borrowing from the People's Bank of China (PBOC) and agreed that the steps taken to prohibit lending by PBOC branches would help to enhance monetary control. 'Let me signal the importance of last month's enactment of laws governing the legal framework for monetary policy and increasing PBOC autonomy,' he said. Many Chinese fiscal reforms have been applauded by the IMF. These include the simplification of the tax system - with the introduction of a broad based value-added tax - an unified enterprise tax and a united-personal income tax. Mr Ouattara also pointed to decisions taken which recognised and supported the key role that agriculture continued to play in China, and the actions taken to improve its efficiency and pricing systems.