Chinese banks have been ordered to set aside record levels of reserves after Wen Jiabao, the Prime Minister, admitted that he was “deeply worried” by the prospect of the US sub-prime meltdown spreading around the world.

His comments, analysts said, highlighted the fragility of the cherished “decoupling” theory - the belief that Chinese and Asian growth is now robust enough to rumble through a US recession unscathed.

Mr Wen said yesterday: “I am closely watching and feel deeply worried about the global economic situation, especially the US economy. What concerns me now is the continuous depreciation of the US dollar and when the dollar will hit bottom.”

He was speaking after Chinese inflation soared to an 11-year high of 8.7percent in February. Analysts said that the Chinese central bank may soon be forced into the monetary policy minefield of raising interest rates in a cooling economy.

Fuelling those concerns were hints by Zhou Xiaochuan, the Governor of the central bank, that he had not ruled out a rate rise.

Acknowledging the need to “find the balance point between economic growth and inflation”, Mr Wen closed the National People's Congress in Beijing with a promise that the authorities would take “forceful measures” to temper surging prices.

Inflation, he said, was the top concern among Chinese people and would be met with appropriate actions. The first of those measures - the demand yesterday that lenders place 15.5 per cent of deposits with the central bank - was undoubtedly tough but probably only a foretaste of draconian measures to come. Stricter lending controls are expected to be imposed in coming months.

With China still feeling the inflationary effects of its worst snowstorms in 50 years and the resulting destruction of many crops, Mr Wen said that it would be tough to achieve the 4.8 per cent inflation target set by the Government.

Even before the storms, however, analysts had given warning that official Chinese inflation figures seriously underplayed the reality on the ground. Peter Morgan, an HSBC economist, said that one of the most significant risks to the Asian growth story lay in inflation.

If it shows signs of spreading beyond food and energy, he cautioned in a note to clients yesterday, and is transformed into general expectations of inflation and wage-setting, Asian monetary authorities could find themselves tightening policy even in the face of a slowdown in exports.

Economists also gave warning that if the United States slipped into recession there was a growing likelihood that Asia's present insulation would fail quickly.

Despite the pace of domestic-led growth in China, and the exposure of surrounding economies to that dynamic, a slump in global trade might still deal a heavy blow to China, potentially exposing the massive manufacturing overcapacity that has been causing growing concern to investors.

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