Cautious policy needed

Policymakers charting China's monetary and fiscal policies for 2012 at the Central Economic Work Conference, which is due to start on Monday, should not ignore the strong headwinds blowing both inside and outside the country.

They must be prepared for a weakening domestic economy and volatile external environment, especially in Europe, which is China's largest trade partner.

The weekend agreement reached in Europe, which offered temporary relief to global investors and those worried about a potential collapse of the euro, remains a far cry from a fiscal union that will prevent the European crisis from happening again.