China's economy was on sound track but prospects were complicated by the world economic slowdown, said Zhou Xiaochuan, governor of China's central bank, on Sunday.

In a report Zhou made to the fifth session of the Standing Committee of the 11th National People's Congress (NPC), he said the country's economy was developing as expected, but the world economic slowdown added uncertainties to its prospect.

"Our economy is highly reliant on overseas demand. Slacking exports resulted from the global economic slowdown would have a negative impact on the economy," he said.

He suggested the country need to be cautious in adjusting policies because there are both possibilities of cost-driven price rises and possibilities of continuous price falls in the future.

"Currently, inflation pressure mainly comes from rising cost," he said.

He said in the world, more and more economies began to shift their policies from curbing inflation to boosting economic developments amid a world economic recession. The international commodity price is expected to enter a new round of rise.

According to him, the PBOC will adopt flexible and prudent macro-control policies to strive for the stability of the country's financial sectors and promote sound and rapid economic growth.

Zhou said efforts would go to other specific fields, including establishing financial risk monitoring mechanism, enhancing cooperation among domestic and overseas financial organs, and ensuring liquidity in the banking system.

He also urged strengthening foreign exchange management through enhancing cross-border capital flow management and supervision, in a bid to avoid losses and risk caused by speculation activities.

The central bank would keep a close look over the real estate sector and improve financial services in this sector, he added.

Zhou said that the impact of the world financial crisis on China's economy cannot be underestimated. However, the country's economic situation is sound as a whole, and is capable to effectively resist the external impact.

China's financial sectors have grown stronger after years of development. The profit-earning and risk-resistance abilities have been greatly improved, market liquidity is sufficient, and the financial system is sound and safe, he explained.

The fifth session of the Standing Committee of the 11th National People's Congress (NPC) opened its second plenary meeting Sunday morning. Wu Bangguo, chairman of the Standing Committee of the NPC, attended the meeting.

(Xinhua News Agency October 27, 2008)