Chinese economists have warned that the country's growing inflow of foreign cash could lead to economic overheating and inflation. Beijing's World Trade Organization representative also says China abides by WTO rules that Western nations have violated. Daniel Schearf reports from Beijing.

The president of China's National Economic Research Institute, Fan Gang, said Friday that "hot money" from China's record trade surpluses, foreign investment and foreign currency reserves adds pressure to the economy and could result in overheating.

Fan says as a developing country, these rapid inflows of money can very easily produce all kinds of bubbles, crises and imbalances. He warns that the domestic economy can become unstable and suffer inflation.

China has the world's biggest foreign currency reserves and receives billions of dollars in foreign investment every month.

Many foreign economists and business leaders say China's currency, the yuan, is undervalued by as much as 40 percent and therefore partly responsible for China's cheap exports.

Fan was speaking at an international seminar in Beijing, co-sponsored by the Chinese government, which sought to portray China's rising power as a positive influence on the world and the global economy.

Fan, however, says that a stronger currency will not affect China's trade surplus, but would result in unemployment, a politically sensitive issue in China. He says the main cause of the trade imbalances and vast reserves is Chinese people's habit of saving money and says the government needs to encourage consumers to spend more.

He also says China should remove export rebates and limit some exports to reduce trade tensions. China's major trading partners have accused it of dumping cheap goods to corner markets in their countries.

At the same conference, Beijing's representative to the World Trade Organization, Sun Zhenyu, said that China is fulfilling its commitments for fair trade. He accused Western nations of breaking their WTO promises.

He says China has eliminated import licenses, in line with its promises when it joined the WTO. On the other hand, Sun says, important members like the United States and the European Union still pressure China to sign agreements on trade quotas.

Sun says the textile quota agreements China signed with the U.S. and EU are an example of growing protectionism. But he says protectionism is a trend that is not likely to last very long because it will harm American and European enterprises.

Government experts also sought to deflect criticism of the strain China's economic growth places on resource markets and the natural environment.

A government energy expert said exports consumed 20 percent of China's energy and foreign traders were therefore partly to blame for China's worsening pollution. Another estimated 14 percent of China's pollution is due to exports to the U.S.