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China Needs to Constrain Economic 'Monster': Roubini

China's tightening is a necessary policy action, Nouriel Roubini, chairman at Roubini Global Economics, told CNBC on Thursday, warning that some of the stimulus measures used by China were excessive, showing the beginnings of an overheated economy.

"The Chinese realize they unleashed a bit of a monster," he said. "They have to constrain it."

Roubini added that direct credit controls were necessary for China to get into a healthy, sustainable track, as traditional monetary policy tools do not work.

"Given the level of interest rates is very low in China and the economy is growing now closer to 9%-10%, you need direct credit controls," said Roubini. "China decided a year ago to repeg to the U.S. dollar , therefore it had to intervene aggressively to essentially prevent the appreciation from occurring. All this intervention has only been partially sterilized. Therefore credit growth has accelerated."

Roubini added that global markets overreacted to China tightening its polices because it was something that was not priced in by markets.

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