CHINA'S financial troubleshooter Zhu Rongji warned last night that success in bringing the economy under control should not be over-estimated and that the situation was still grim. Vice-Premier Mr Zhu, reporting to senior National People's Congress members on the success of his 16-point austerity programme, said: ''As the amount of money in circulation is excessive, it will still be very difficult to reach the year's goal of controlling the issuing of paper money.'' But there had been some success in curbing China's dangerously overheating economy and runaway inflation. They were: Illegal inter-bank loans had been brought under control. By August 15 about 72.7 billion yuan in illegal loans, or one-third of the total, had been recovered. Illegal collection of funds had also been initially brought under control, with banks seizing the opportunity to raise interest rates twice, ending the slump in savings. Exchange rates between the yuan and foreign currencies had dropped to a reasonable level and remained basically stable. The overheated growth of development zones and real estate speculation had been brought under control and the once abnormally high price of real estate has started to fall. Refering to civil unrest in the provinces earlier this year, said to have been sparked by anger over high inflation, Mr Zhu said: ''The tension has been relaxed somewhat, but it will last for a certain period.'' Earlier, China's financial minister Liu Zhongli warned the third session of the NPC standing committee that greater controls on public spending were urgently needed if the economy was to become stable. While some public spending cuts had been implemented and there were signs of growth in state revenue, Mr Liu said: ''The total size of deficits is widening.'' To maintain a budget balance, he said Beijing must strengthen tax collection, cut expenditure and increase the state's revenues. The first few months of the year had witnessed an excessive rise in state expenditure, and he called on banks and other financial institutions to impose strict controls on the scale of spending. In making spending plans, he said, priority should be given to salaries and bonuses, price subsidies, key infrastructure projects and aid to poverty-stricken areas. According to Xinhua (the New China News Agency), Mr Liu revealed that the current deficit stood at 7.9 billion yuan by the end of last month, almost 13 per cent up on last year's figures. Last year's total deficit from January to July was 7.01 billion yuan. The total state revenue in the first seven months reached 214.3 billion yuan, representing an increase of 5.3 per cent from the same period last year. Xinhua said the total state expenditure in the same period this year was 208.2 billion yuan, up by 9.2 per cent when compared with last year's corresponding figure. But Mr Liu said underlying dangers remained, including the ''chaos and laxity of discipline'' in the finance and taxation areas, as well as the weakness of the central Government in supervising and controlling the macro economy. One worrying trend, he said, was the slow growth or drop in ''major sources of revenue''. The official also blamed the slowness of some regions in increasing their revenue and said this has adversely affected the overall balance of the state budget. The government was striving to boost the economic efficiency of state-owned enterprises, but it was also vital for Beijing to check tax exemption trends and jettison over-favourable tax policies laid down by certain sectors and areas. He said the government should also make sure that regional authorities strengthened tax collection. People's Bank of China chief Mr Zhu told the NPC members that the fundamental way to solve the current contradictions and problems in the economy was to deepen reform and to miss no chance to push forward financial restructuring. The next step in financial restructuring was to build up a central bank regulatory system under the leadership of the State Council and carry out the state monetary policies correctly; build up a system that divides financial policy from commercial finance, with state-owned commercial banks as the main body alongside other banking institutions; and to build up a unitary, orderly competitive and strictly controlled financial market system, he said. He said the State Council was now mapping out a plan for financial reform in line with the above targets.