Premier Wen Vows To Cool China's Growth

LONDON — China has set off fresh jitters across global markets after Prime Minister Wen vowed to cool the economy following blistering growth of 11.1% in the first quarter.

In a mini-replay of the stock-market rout in late February, a 4.9% slide of the Shanghai Shenzhen index led to a wave of selling across Asia, with brief knock-on effects in Europe and North America.

"Loan growth is too fast," said Mr. Wen, pledging draconian curbs to slow lending. Investment in plant, mines, and property vaulted 23.7% in the first three months. Industrial output was up 18.3%, while inflation has crept up to 3.3%, the highest in two years.

"We have excessive liquidity and an irrational economic structure. If this kind of fast growth continues, there is the possibility of overheating," said government spokesman Li Xiaochao.

China has already tightened reserve requirements five times to curb borrowing, with little effect on the speculative fever sweeping the population. A million people opened stock trading accounts last week alone. The Shanghai market is up 130% over the past year.

"The economy is still on tear, and the authorities are going to have to work harder to slow growth down," said Peter Morgan, HSBC's chief Asia economist.

It is unclear whether Beijing has now moved from gradual tightening to an all-out campaign to stop the investment bubble before it is too late, but the harsher tone caused an initial flight to safety across Asia. The yen jumped as speculators trimmed exposure to the carry trade.

In London, mining shares fell on fears that a Chinese slowdown will damp the country's explosive demand for metals. Antofagasta closed down 1.92%, Vedanta was off 1.86%, and Xstrata fell 1.39%.

"We're going to lose one of the key motors of world growth, especially for commodities, and that's extremely worrying," said Albert Edwards, global strategist at Dresdner Kleinwort. "People have been assuming that it doesn't matter if the U.S. slows down since Europe and Asia will keep on going. We think this is a triumph of hope over experience. The historical data show that this sort of decoupling never lasts long, and Japan is already looking soggy," he said.

China tends to rely on fuel, electricity, and land controls, or permit rationing. But Beijing's control over 170,000 politically managed state bodies is more fiction than reality. The party officials have already accumulated $800 billion in bad debts.