The mainland economy has become more sensitive to external shocks and is facing serious challenges including the financial turmoil in the United States and inflation, according to a senior banking regulator. Han Mingzhi, a director-general at the international department of the China Banking Regulatory Commission, said a sound and resilient banking system was essential for the nation's economic stability under such circumstances. External financial and economic conditions, including the subprime mortgage crisis and rising oil and food prices, were posing serious challenges to the mainland, Mr Han said at a forum organised by the Hong Kong Institute of Bankers. 'The global economy is starting to slow down this year and is heading for a possible recession,' he said. Unlike the Asia financial crisis 10 years ago when the mainland was largely unaffected, Mr Han said, the economy was now more sensitive to external shocks. Still, he expected the economy to remain on the right track as long as risks were well managed. He said the country should have measures to encourage banks to develop more effective internal controls and prudent risk management, improve legal and regulatory systems and strengthen cross-border supervisory co-operation. Mr Han said no mainland bank had failed in the past few years and he did not expect one to fail because the government had introduced reforms to help lenders boost their capital, improve credit quality, enhance corporate governance and warn banks when it identified potential risks. He said reforms at Agricultural Bank of China, one of the Big Four state banks, were still continuing and that he hoped there would be a positive outcome in the next few months.