'We will combat demand and prevent rapid economic growth from turning into overheating,' China's vice-finance minister Li Yong told delegates at the Asian Development Bank's annual meeting in Madrid yesterday. China is trying to cool growth without triggering a slump in the world's fastest-growing major economy as export demand wanes.

'We always say there is a possibility to use interest rates' to restrain inflation, central bank governor Zhou Xiaochuan told reporters in Basel, Switzerland, adding that policymakers have a range of options.

China's economy, the world's fourth-largest, expanded 10.6 per cent in the first quarter, down from 11.2 per cent in the previous three months.

Consumer prices climbed 8.7 per cent in February, the fastest pace since 1996.

China will do more to 'sterilise' capital inflows, Mr Li said, using a term that describes measures such as sales of government bills to take currency out of circulation. He said he was also referring to bank reserve ratios - already raised three times this year to require lenders to set aside a record 16 per cent of deposits.

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