Wen Jiabao, the Chinese Premier, attempted to salvage the country’s manufacturing reputation yesterday by pledging that his government “takes product quality and food safety very seriously” and vowing to improve the quality of exports with legislation.

His assurances came just hours after the Chinese authorities began an investigation into lead paint contamination of about 800,000 Mattel toys in the United States. China’s reputation as the “workshop of the world” has taken a beating in recent months as exports from toothpaste to pet food have sparked global safety scares.

Addressing delegates of the World Economic Forum in the northeastern port city of Dalian, Mr Wen used the opportunity to soothe a host of other concerns swirling around China as its economic might grows.

He emphasised the need to prevent the country’s booming economy from overheating and pledged to modernise the creaking financial system whose shortcomings many believe could be China’s undoing.

In an apparent nod to one of Washington’s chief criticisms of Chinese policy, Mr Wen hinted that he would allow market forces to have a greater effect on the yuan exchange rate.

Mr Wen said he applauded the forum’s goal of “establishing a new economic order”. But as fears grow that China is allowing itself to succumb to a bubble mentality, he raised a series of caveats over the country’s growth that included entrenched structural obstacles and severe inflation.

“I want to tell you frankly that China is still a developing country with a large population, a weak economic foundation and underdeveloped productivity. This is a reality that has basically remained unchanged,” he said.

Earlier yesterday, with fears of overcapacity in China’s manufacturing sector running high, the Government ordered its banks to earmark more cash as reserves in an effort to dampen the lending boom before it gets out of control.

It was the seventh time this year that the authorities have acted to curb what it sees as the inflation-fuelling excesses of a bloated trade surplus.

Mr Wen identified oversupply, excessive growth of investment in fixed assets, credit and loans, and the trade surplus as “major problems”.

He said: “We will deepen reform of the financial sector to develop a modern banking system, comprehensive monetary regulatory mechanism and multi-tiered capital markets.”

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