Imported inflation may affect China's financial markets and hinder macro-economic controls aimed at preventing the world's fastest-growing major economy from overheating, the People's Bank of China said.

Consumer prices, which climbed the most in 11 years in February, could keep rising because of higher costs of imported goods, the central bank said in its 2007 China Financial Markets Development Report posted on its Website yesterday.

Premier Wen Jiabao in March named fighting inflation as the government's top priority this year and froze fuel and utility prices. The rising cost of grain and production goods on international markets will "increase inflationary pressure in China," the report said.

Consumer prices jumped 8.7 percent in February as food and fuel costs surged. The government said it aims to keep inflation in 2008 below last year's average 4.8 percent, Bloomberg News said. Still, the central bank said the likelihood that prices will keep rising "still exists for the coming period of time" as a result of higher import prices and inflation expectations.

The growth in the country's trade surplus "may slow gradually" as world economic expansion weakens, according to the report.

"Some developed markets are transferring risks to emerging markets using their financial advantages," the report said. That has "aggravated instability in global financial markets" and volatility in China's financial markets may increase as a result.

China will speed up the development of its bond market and introduce derivative products based on bank loans and corporate bonds, according to the report. The central bank will also study foreign-currency futures and options.

China will introduce real estate investment trusts "at a proper time," the report said.

(Shanghai Daily April 11, 2008)