China: Protecting domestic economy is top priority

Preparing for a Washington summit to discuss a response to the global financial crisis, China indicated Tuesday its focus will be its own economy — not paying to bail out others.

Officials have yet to say what President Hu Jintao will propose at the weekend meeting of leaders of 20 major economies. But Beijing made the outlines of its strategy clear with the announcement of a multibillion-dollar package to stimulate its economy with more spending on construction, tax cuts and social programs, with no mention of efforts abroad.

British Prime Minister Gordon Brown wants Beijing to use its nearly $2 trillion in reserves to help top up an International Monetary Fund emergency loan facility. But a Chinese Foreign Ministry spokesman said Beijing's priority is to "put our own house in order" and ensure domestic stability.

"I believe this is the most effective contribution China can make to tackling this financial crisis. It will help to maintain the sound and steady development of the world economy," said the spokesman, Qin Gang.

Qin said Beijing was ready to make "concerted efforts" with other governments but gave no indication what that would include.

Beijing's banks and financial industries have avoided the turmoil that has paralyzed Western markets. But the government says its resources are limited and it has to focus on domestic economic challenges.

Chinese leaders are alarmed at a sharp drop in economic growth, which fell to 9 percent in the most recent quarter. That is the highest for any major economy, but below last year's 11.9 percent and dangerously slow for a government that needs robust growth to satisfy a public that has come to expect steadily rising incomes.

On Tuesday, the government's challenges were highlighted by the release of trade data that showed growth in foreign sales fell in October, adding to damage for struggling exoprters that already are suffering from weak foreign demand.

China's global trade surplus rose to a new monthly high of $35.2 billion but that masked a slowdown in export growth. Exports rose 19.1 percent — down sharply from July's 26.9 percent before the slowdown hit in earnest. Import growth also fell sharply, reflecting weakening domestic demand.

The politically sensitive trade gap with the United States widened by 13.6 percent to $17.5 billion, according to the national customs agency. But its figures showed the global surplus for the first 10 months of the year is only about 1 percent bigger than for the same period last year.

A downturn in export orders already has led to layoffs and factory closures.

"The global financial crisis has had a considerable impact on China's export growth, which will continue to show weakness with recession in the U.S. and Europe," said a report by Jing Ulrich, JP Morgan & Co.'s chairwoman for China equities.

The government has tried to reduce China's reliance on exports by encouraging its own consumers to spend more. Retail sales are growing at annual rates of more than 20 percent but are still small as a share of the economy.

Exporters and the companies that supply them employ tens of millions of people.

Weaker demand for Chinese goods is expected to cause economic ripples to spread worldwide as China's manufacturers buy less imported factory machinery, industrial components and raw materials such as steel made with foreign iron ore.

In a positive sign, the government reported Tuesday that October's inflation rate eased to 4 percent, down from September's 4.3 percent. That will ease the risk of new price rises as Beijing tries to boost growth by pouring money into the economy.

The 4 trillion yuan ($586 billion) stimulus plan includes higher government spending on airports, highways and other projects, tax cuts for exporters and more aid to farmers and the poor. Few details have been released, but economists expect it to depend on increasing investment by Chinese state companies. The government has promised more bank lending for small businesses and consumers.

"As the contribution of trade to China's economic growth dissipates, we expect further measures to be introduced aimed at stimulating consumption and investment in the domestic economy," Ulrich said.

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Associated Press Writer Anita Chang in Beijing contributed to this report.

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