China less likely to buffer world crisis as its economy slows

The Chinese government said today that economic growth in the third quarter slowed sharply to an annualized rate of 9%, the lowest level in more than five years.

China's economy expanded by 11.9% in all of 2007. But weakening demand for Chinese factory goods from U.S. consumers and the slumping Chinese property market have taken a toll on exports and investments -- two big engines of China's economy.

"China's latest economic numbers will be disheartening for observers who hoped that China's growth would substitute for slowing demand from developed countries," said Jing Ulrich, managing director of China equities for JPMorgan in Hong Kong.

Analysts said the pace of slowing was worse than they had expected and would probably spur Beijing to take measures to address the threat of rising joblessness and social instability.

China's State Council, or cabinet, issued a statement over the weekend that the government would focus on "rapid and stable economic development" in the fourth quarter, whereas in the past greater or equal priority was given to controlling inflation. Although specific measures weren't announced, state-run media reported that they would include increased rebates for exporters and support for loans to small and medium-size businesses.

Still, after today's economic report, analysts lowered their forecasts for the fourth quarter. And some economists say China's economic growth could fall to 7% next year. While that's still fast by global standards, it would be a big comedown for China, which has sustained an average annual growth rate of 10% over the last three decades.

"If growth dips below the 8% mark, the economic conditions in China would be equivalent to a recession in advanced economies," said Sherman Chan, an analyst at Moody's Economy.com in Sydney, noting that a rate of at least 8% is generally viewed as needed to support China's large labor market.

China's boom in recent years has been a key driver of global economic growth, lifting oil and metal prices, spurring trade in other nations and boosting revenues for foreign companies that have invested tens of billions of dollars annually. Commodity prices already have fallen, hurting big resource-export nations such as Australia.