Chinese government should tighten macro-economic policies while simultaneously watching out for signs of a major economic downturn and possible stagflation, China Construction Bank (CCB) said in a recent report, the official Shanghai Securities News reported Thursday.

According to the report, China is now facing new challenges – the possible emergence of high inflation, an overheated economy, and an economic downturn.

Guo Shikun, head of the research department of CCB, told the newspaper that the Chinese government needs to take a balanced approach when coping with multiple economic problems. He said that, under the current circumstances, expansionary or prudent macro-economic policies may be able to sustain economic growth, but their side-effects would cause further increases in commodity prices; tightening measures would help keep down prices and curb inflation, but would hurt the domestic economy which is already facing the risk of a downturn.

"Preventing the economy from overheating and preventing the current structural price hike from turning into major inflation remain the major goals of China’s current macro-economic controls,” said Guo, “but we should also be alert to the danger of a possible economic slump and stagflation.”

For more details, please read the full story in Chinese

(http://paper.cs.com.cn/html/2008-07/03/content_15941742.htm).

(China.org.cn by Yan Pei July 3, 2008)