But they dismiss fears that a flood of loans is leading to overheating Top regional economists yesterday said China was suffering from serious over-investment in certain sectors, but that the economy as a whole was still healthy. The economy grew by 9.1 per cent in the third quarter and is on track for 8.5 per cent growth for the year. The People's Bank of China recently raised the deposit reserve rate - the percentage of deposits that banks must keep on hand - from 6 per cent to 7 per cent. The move was designed to slow the flood of loans into the economy, especially to the property sector. Huang Yiping, China economist at Citigroup in Hong Kong, said he saw over-investment in the property and car manufacturing sectors. 'The government ... is trying to limit over-investment in property and autos and there is definitely an over supply in both [sectors], but the economy as a whole hasn't reached a stage of overheating.' Overheating occurs when demand rises faster than supply, causing inflation. In China the opposite situation still exists. 'Many people say there is over-heating and that it is similar to what happened in 1993 and 1994 when there was over-lending,' said Mr Huang. 'Many fear inflation will pick up and may indeed lead to over-heating, but I don't think this is correct.' Despite a growth rate expected to reach as high as 9 per cent this year, inflation remains at about 1 per cent. 'People only start to notice when inflation rises to 3 per cent or higher,' said Mr Huang. 'What we're facing, in fact, is still strong deflationary pressure.' Prices are increasing in certain sectors, such as raw materials and commodities and in agricultural products because state-run monopolies continue to enjoy unfair competition in these areas. Under the terms of China's accession to the World Trade Organisation, most of the state monopolies will end by 2007. A recent study by ING Financial Markets said rapid price increases in agricultural products, such as wheat, soyabeans, corn and livestock, were good for the nation's peasants, who have suffered declining living standards since the mid-1990s. 'Rising food prices should boost inflation, and income of the large rural population, which should underpin China's consumption growth,' said the study. Liang Hong, a China economist with Goldman Sachs, said she also saw no danger of overheating. 'China started the year badly and is now just recovering,' said Ms Liang. She said the government should focus on restructuring bad practices at local property bureaus where officials often collude with bankers to build wasteful or unnecessary projects. It is well known that officials and bankers involved in property deals often spend over budget and get rich through kickbacks.