ALTHOUGH senior Chinese leaders have expressed concern with runaway inflation, mainland economists warned yesterday against taking drastic measures in a desperate attempt to contain soaring prices. They noted that the current state of the economy as not as serious as in 1988, when runaway price levels ignited widespread social unrest, which resulted in the downfall of then party secretary Hu Yaobang. Deputy director of Department of Economics at the Beijing University, Professor Cao Fengqi, said: ''I am not too pessimistic about the current situation. It is not so serious that social unrest is imminent.'' From January to April, the cost of living in the country's 35 big and medium cities rose 16 per cent over the same period last year. The official China Daily reported that sales of brand name durables, such as imported television sets and refrigerators were brisk as consumers anticipated more prices hikes. However, Professor Cao, in Hongkong attending a conference hosted by the University of Science and Technology, said overall consumer psychology had been quite stable this year compared with that of 1988. ''The public appear to be better prepared to absorb the price hikes,'' Professor Cao said. He noted that although residents rushed to acquire foreign currencies and brand-name durables, the phenomenon was restricted a limited number of people. An expert on monetary economics, Professor Cao said this year's inflation was caused mainly by excessive money supply over the past two years and the removal of price controls in major Chinese cities. So far, Chinese authorities had relied on monetary policies to control the supply of money. Beijing hoped that by increasing interest rates, residents would be encouraged to put their money back into the banks, thus increasing funds for necessary projects. The other effect of raising interest rates was to cool down unnecessary projects or overheated sectors, such as real estate. Beijing was also tightening up credit approval to ensure it did not exceed pre-set quotas. Other measures the Government can contemplate include the control of its own spending and a crackdown on the unauthorised fund-raising activities by local authorities to finance their projects and development zones. ''Whether these measures will be effective remains to be seen. The major problem is that China is at the transition from a planned economy to market economy. The control might not be as effective as before,'' Professor Cao said. ''As a result, some measures seem quite effective at the central level, but are not so apparent in the localities,'' he added. Professor Cao said if the situation continued to deteriorate in the second half of this year, the authorities might adopt more drastic measures. However, he warned of serious damage to the economy. ''The Chinese economy is investment-led, tight credit policies will be damaging to the economy. A soft landing is more desirable,'' he said. As the economy would still see significant growth this year, money supply should continue to increase to ensure a soft landing, according to Professor Cao. However, a Hongkong economist said that the inflation problem in China was not purely caused by excessive money supply. Professor Steven Cheung Ng-sheong, head of the School of Economics at the University of Hongkong, said that the current system in China made it obligatory for the Government to look after the financing of state-owned enterprises. Secondly, the involvement of senior officials in business complicated the matter. ''With power, they will have the ability to borrow money from state-owned banks,'' he said. The People's Bank of China, the central bank, has to meet the financial needs of central and local governments. ''Under such circumstances, it will be extremely difficult to control money supply,'' said Professor Cheung. ''A major reform of the whole banking system is a must to solve the problem.'' Professor Cheung suggested that only the central bank should have the right to control credit, which should be limited to a growth rate of no more than 20 per cent per year.