China will maintain its stimulative policy stance because the economy, far from being on solid footing, is facing fresh difficulties, Premier Wen Jiabao said on Monday.

In a downbeat statement on the government's website following a trip to the eastern province of Zhejiang, known as a hotbed of private enterprise, Wen said Beijing would ensure a sustainable flow of credit and a reasonably sufficient provision of liquidity to support growth.

A drop in new yuan bank loans in July to 356 billion yuan ($52 billion), compared with an average of over 1.2 trillion yuan in each of the first six months of the year, has created worries among some analysts that the recent rebound in growth could be knocked off track.

We must clearly see that the foundations of the recovery are not stable, not solidified and not balanced. We cannot be blindly optimistic, Wen was cited as saying on http://www.gov.cn.

Therefore, we must maintain continuity and consistency in macroeconomic policies, and maintaining stable and quite fast economic growth remains our top priority. This means we cannot afford the slightest relaxation or wavering.

China still faced great pressure from the slowdown in demand for exports, Wen said, adding that it was difficult to boost domestic demand in the short term to fill in the gap -- despite the boost from the government's 4 trillion yuan ($585 billion) stimulus package.

Thanks to the pump-priming, annual economic growth in the second quarter accelerated to 7.9 percent from 6.1 percent in the first three months of the year.

Although the most important aim of the stimulus was to prevent a sharp drop in growth, Wen said its purpose was also to make China's economic growth model more sustainable.

In particular, he said China would continue to increase fiscal spending on infrastructure and environmental protection.

The impact of some short-term policies will fade gradually, but it takes time to see the effects of medium- and long-term policies, and there are many new difficulties and problems in economic operations, he said.

The comments come amid volatility in the Shanghai stock market that has fanned worries the economy could be coming off the boil as the government reins in break-neck credit growth.

The Shanghai Composite Index <.SSEC> ended up 1.1 percent on Monday after falling 2.8 percent last week in wide-ranging trading. It is now down by nearly 14 percent from its peak reached on August 4.

China's latest economic data for July indicated that while growth was moderating after a strong second quarter, the recovery remained on track to achieve the government's goal of 8 percent growth for the full year.

Central bank adviser Fan Gang said in remarks published on Monday that he expected growth to hold up at 8 percent next year as well, as property and corporate investment, together with rising exports, pick up the slack from waning government investment.

(Reporting by Zhou Xin, Simon Rabinovitch, Langi Chiang and Aileen Wang; Writing by Jason Subler; Editing by Kazunori Takada)

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