China is expected to maintain its growth momentum this year after achieving an enviable 8.7 percent GDP growth in 2009 despite a global recession. However, inflationary pressure has grown ever more evident in China. If China fails to cope with the situation, it may face a situation in which high growth is accompanied by high consumer prices. As China has emerged as Taiwan's most important trading partner, Taiwan's government should not ignore this emerging trend and should install a 'firewall against inflation' while striving to expand its share of the vast Chinese market. We hope China will adopt a dual strategy to simultaneously maintain growth momentum and control consumer prices. If it fails to control inflation, it may have to endure the worst-case scenario of stagflation. For Taiwan, the government should work out response strategies on various fronts, such as interest rates, exchange rates, hot money control and assistance to China-based Taiwanese companies, to cope with China's changing economic situation. With cross-Taiwan Strait economic and trade relations growing increasingly closer, formulating such response strategies should become a standard process for our government. 