The cost of food was up 21 percent in the first three months from the same period a year ago -- a serious concern for the country's communist rulers, who fear that excessive price rises could set off social unrest.

The world's fourth-largest economy grew 10.6 percent in the first three months of 2008 from a year earlier, the National Bureau of Statistics said in a much-anticipated news conference in Beijing.

This was an easing from 2007, when China's economy expanded by 11.7 percent in the first quarter and 11.9 percent for the year.

"Faced with uncertainties in economic growth, we need to be prepared to prevent both sharp decreases in economic growth and sustained price rises," said Li Xiaochao, the bureau's spokesman.

Following the announcement, the People's Bank of China said it would raise the amount of money that commercial banks must keep in reserve by half a percentage point to 16.0 percent on April 25.

The reserve requirement is one of the tools China uses to try to rein in the economy.

Li mentioned the impact of the US subprime crisis as a key cooling factor in the first quarter.

The crisis has fuelled US recession concerns and coincided with slackening growth in exports from China, whose largest market is the United States.

Overall exports grew 21.4 percent in the first quarter, down 6.4 percentage points from last year's growth rate, the government said last week.

But Li also singled out the worst winter weather in decades, which struck large parts of China in January and February.

Yet he said China was expected to achieve "sound and fast growth" in 2008, with price stability one of the top priorities.

Stephen Green, an economist with Standard Chartered Bank, expressed surprise that economic growth was as fast as China said.

"Given slightly weaker industrial production in the first quarter this year, plus the fact that overall inflation is running higher it is very hard to understand how overall growth hit 10.6 percent," he said in a research note.

He said China was likely "smoothing" the numbers to hide a bigger slowdown "so as not to upset global markets" and to forestall domestic criticism by those opposed to Beijing's currently tight monetary policy.

The consumer price index, the main inflation gauge, rose 8.0 percent in the first quarter from a year earlier after a slight easing of inflation to 8.3 percent in March, according to Li.

In February, it had reached 8.7 percent, the highest since mid-1996.

"Inflation remains the top issue facing the government, as it has a direct impact on people's purchasing power," said Sun Mingchun, an economist with Lehman Brothers.

The government had set a full-year inflation target of 4.8 percent.

Experts say the government is struggling to rein in inflation without denting economic growth too much.

Industrial output, a key measure of activity in the nation's factories, expanded 16.4 percent in the first quarter, compared with 18.3 percent growth in the first quarter of 2007.

Meanwhile, China's fixed-asset investments, the main indicator of state-funded spending on new productive capacity, rose 24.6 percent in the first quarter of 2008, compared to 23.7 percent in the first three months of last year.

The investment figure bucked the slowing trend possibly because investments are fuelled by continued ample liquidity in the system.

That liquidity, in turn, is boosted by incoming foreign funds, such as export earnings, foreign direct investment, and speculative money banking on short-term gains.

Despite the slight cooling, China remains the world's fastest-growing major economy, and it is imperative that policy-makers keep growth under control, analysts said.

"Now we really need some rate hikes," said Green, the Standard Chartered economist.

related report
Food price inflation formidable challenge for China: analysts
When the prices of pork, rice and other staple items go up in China, it affects hundreds of millions of families who spend large parts of their incomes on food.

So as the government in Beijing seeks to rein in inflation, it is grappling with a formidable challenge that will affect the lives of a huge proportion of its population. Failure seems not to be an option.

Even so, it is a task that the policy makers seem to have been only partly successful at, according to official data published Wednesday showing a 21-percent rise in food prices in the first quarter from a year earlier.

"Since last year, food has been the main factor behind inflation, and it very much remains the case this year," Li Xiaochao, spokesman of the National Bureau of Statistics, told a briefing in Beijing.

"We need to pay special attention to enhancing agricultural production, especially grain and pork production."

Inflation as a whole is near 12-year highs at the moment in China, and it is almost exclusively the result of more expensive food items.

In the first three months of 2008, the consumer price index rose 8.0 percent from a year earlier, but if food inflation was deducted, it was only 1.2 percent higher, according to the statistics bureau.

"If it was the prices of computers that were rising, it would only affect people who use computers," said Hu Lubin, a Shenzhen-based economist with China Merchants Securities.

"But everyone needs food, so this has an impact on every person in China," he said.

According to Robert Subbaraman, a Hong Kong-based economist with Lehman Brothers, inflation led by food prices is a particularly big issue for low to middle-income countries such as China.

"Developing countries typically don't like that because if you look at the average consumption in countries like China, a very large share of the monthly spending is on food," he said.

"In China, it's made to be about a third in the cities. In the countryside, the poorer part of society, it can be over a half. So it can really create social problems, which in turn can spread well beyond economic problems."

But although China's problems are huge, they reflect larger global issues that are now suddenly leaping to the top of the world agenda.

"We estimate that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty," World Bank President Robert Zoellick said Sunday.

"This is not just a question about short-term needs, as important as those are. This is about ensuring that future generations don't pay a price too."

International Monetary Fund head Dominique Strauss-Kahn warned: "As we know, learning from the past, those kind of questions sometimes end in war."

A number of unrelated factors have come together to bring about higher food inflation in China, Virendra Singh with Moody's Economy.com said in a research note.

Unusual global weather conditions have cut yields for crops such as corn and soybeans, while developed countries' emphasis on ethanol and other biofuels is also pushing up prices for corn and other high-fructose crops, he argued.

"Weather conditions have also contributed to rising food prices, but this new western energy policy has engendered disruptive and volatile price adjustments across the world," he said.

Chinese farmers, along with farmers across the world, are contributing to the problem, as globalisation has helped make pricing information readily available around the world, he said.

"With a cell phone in almost every village in grain-producing areas, farmers across the globe are aware of pricing trends," he said.

"Farmers have been planting more corn to meet surging global demand, contributing to shortages of wheat and rice -- diet staples -- while also contributing to global social and political stress."

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