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Chinese Premier warns of 'difficult' start to 2012

CHINA’S Premier Wen Jiabao has warned of a difficult start to 2012, amid concerns over a potential slowdown in the world's second largest economy.

Mr Wen also reiterated pledges to expand domestic demand as authorities try to ward off the effects of crises in the US and Europe - key markets for China's export-dependent economy.

"The first quarter of the year may be quite difficult," Mr Wen said, according to a statement by the State Council, China's cabinet.

"We are now in a situation where pressure from an economic downturn and high prices both exist," he said.

Mr Wen added that slowing external demand and the rising cost of doing business domestically further complicated the situation when compared with the financial crisis in 2008.

"We have a relatively cool market. This is the core of current problems," he said.

Beijing is anxious to prevent a sharp slowdown in the economy but at the same time it wants to avoid reigniting inflation, which hit a more than three-year high of 6.5pc in July but has since slowed.

China's economy grew an estimated 9pc or more year-on-year in 2011, the official Xinhua News Agency said recently - slower than 2010, when annual growth was more than 10pc.

The economy is widely expected to slow even further this year.

In a bid to boost growth and counter turmoil in Europe and the US, leaders have cut the amount of money banks must hold in reserve for the first time in three years.

Last month, China's leaders also vowed to maintain "prudent" monetary policies after a major meeting to set the nation's economic course in 2012, and agreed to "guarantee steady growth" - a pledge reiterated by Mr Wen.