BEIJING - CHINA must not under-estimate the impact of the global financial crisis but its economy is strong enough to weather the storm, the nation's central bank chief said on Sunday.

Zhou Xiaochuan said consumer demand at home would help offset lower demand from abroad for Chinese goods, amid a financial meltdown which has triggered concerns of a debilitating global recession.

'The current adjustment of global economic financial markets is the inevitable result of the releasing of unbalanced contradictions that have accumulated over a long period,' Mr Zhou told a parliamentary meeting.

'We cannot underestimate the impacts of this on our economy.'

The People's Bank of China would continue a flexible and prudent monetary policy to address 'unstable elements' attacking the global economy and strive to maintain fast but stable economic growth, he added.

'We must recognise that the outlook of our overall economy is currently good.

'The strength of our financial organs are increasing and their profitability and capability to fight risks are also rising, market liquidity is rather ample and the financial system is stable and safe.

'We can effectively defend against the impact coming from abroad.'

The central bank would continue to adjust interest rates to maintain enough liquidity in the market, he said in remarks posted on the parliament's website and carried by the official China News Service.

The bank would also support policies aimed at injecting cash into the economy through ongoing disaster relief efforts for the devastating May 12 earthquake in Sichuan province, through rural and agricultural supports and the housing market, Mr Zhou went on.

'We will maintain the fundamental stability of the exchange rate of the yuan. We will strengthen the management of foreign exchange and prevent short-term capital movements from impacting our financial system.' China said last Monday that third quarter economic growth had slowed to 9.0 per cent, the first time since late 2005 that quarterly growth has slipped into single digits and the lowest growth figure since the second quarter of 2003.

In southern China, factories that have relied on exporting to the United States and other rich nations have begun closing down, laying off thousands of workers.

'The slowing of the global economy and the weakening of external demand that it brings will have a negative impact on the development of our economy,' Mr Zhou said.

But 'the role of domestic demand, especially consumer demand, to promote economic growth has strengthened'.

Mr Zhou said China's slowing economy was also due to a tight monetary policy implemented last year aimed at curbing inflation and preventing economic overheating.

Although the consumer price index has fallen from 8.7 per cent year-on-year in February to 4.6 per cent in September, he warned that inflationary pressures could return with an expected recovery in global market confidence.

'With the industrialisation of China, India, Brazil and other developing nations, the inflationary trends on prices of natural resources and essential commodities still exist,' Mr Zhou said.

'Domestically, we are still in a rather strong period for salary and cost rises.' -- AFP