Nov. 29 (Bloomberg) -- China's central bank governor, Zhou Xiaochuan, urged domestic banks to become more internationally competitive and guard against economic downturns.

Zhou spoke at an investment conference in Beijing today.

``Some financial institutions have been overly optimistic about China's economic environment because the economy has grown rapidly and institutions' earnings were good over the past few years,'' the central banker said. ``But they also need to guard against fluctuations and downturns in the economy.''

A slowing of the global economy may curb demand for China's exports and cool growth in gross domestic product that has topped 11 percent for each of the past three quarters. Accelerating investment in factories has raised the risk of bad loans and sinking profits in a slowdown.

Zhou encouraged lenders to team up with ``complementary'' foreign partners and said the government will foster financial innovation.

To contact the reporter on this story: Li Yanping in Xiamen at Yli16@bloomberg.net;

Last Updated: November 28, 2007 20:47 EST