China vice premier warns of inflation, global slowdown

SHANGHAI (AFP) - Chinese Vice Premier Wang Qishan warned Friday global inflation posed a threat to China's speedy growth, saying high prices abroad had put the nation's economy under major pressure.

"China's economy continues to grow fast... although the economic pace is facing contradictions and problems," Wang said in a speech at a financial forum in Shanghai.

"Mainly, prices are relatively high, while fixed assets investment have not returned to rational levels and at the same time global inflation has intensified, creating major outside pressure for China," Wang said.

The government is battling to control a spike in inflation -- currently near 12-year highs -- while at the same time maintaining the rapid double-digit growth that China has enjoyed for five consecutive years.

The world's fourth-largest economy expanded by 10.6 percent in the first quarter of 2008 compared to a year ago.

Wang, a former mayor of Beijing who is now a key economic policy decision maker, said China had to continue to strengthen macroeconomic controls and implement prudent fiscal policy while maintaining tight monetary policy.

"We must prevent economic growth from turning into overheating and prevent prices from turning into inflation," he said.

He said the weakening US dollar combined with the instability of financial markets and the economies of developed countries meant China had to take steps to protect its economic financial system.

"If we don't handle financial risks properly, this could cause turbulence in the overall economy and undermine social and political stability," he said.

Wang said China would continue to reform its banking, securities and insurance industries and pledged to tighten up on hot money flows.

"We will strengthen supervision over cross-board capital flows and step up efforts to set up a financial security network," he said.

Reforms to its current currency mechanism have achieved substantial progress while attempts to make interest rates more market-oriented were ongoing, he said.

Meanwhile, central bank governor Zhou Xiaochuan, echoed similar sentiments by saying that China had continued to deepen its involvement in the global economy, but also ensure it could protect itself from negative effects.

"We must actively participate in the cooperation of economies in the world and on the other hand head off the impact volatility in the global economy has on China's economy," he said.

"We must maintain fast and sound economic development in China and shoulder due responsibility in promoting global economic development and maintain stability in the global economy."

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