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China growth to ease as export outlook darkens

By Aileen Wang and Michael Martina

BEIJING (Reuters) - China's annual rate of export growth slowed in November versus October, Vice Commerce Minister Chong Quan said on Wednesday, confirming market expectations that deteriorating external conditions are dragging on the world's No. 2 economy.

Indeed, a combination of high cost pressures at home and lack of improvement in the European and U.S. economies points to "severe" conditions for Chinese exporters next year, said commerce ministry foreign trade official Wang Shouwen.

These views were given further weight when influential think tank, the Chinese Academy of Social Sciences (CASS), issued forecasts for 2012 predicting the weakest economic expansion in more than a decade.

Official data on Saturday is expected to show exports in November grew at their weakest annual pace in two years, excluding an anomalous slide in February when the Lunar New Year holiday disrupted activity.

"Export growth in November was even slower than October," Chong told reporters on the sidelines of a news conference releasing a government report on China's long-term trade development.

Exports in October grew 15.9 percent from a year earlier, the most sluggish pace in eight months and also the slowest since November 2009, when volatile February data is excluded.

China's export sector -- a key driver of economic growth -- is set to suffer more headwinds in the coming months, analysts say, as Europe's debt crisis worsens and consumer spending in the United States remains weak.

Chinese officials have already expressed growing alarm over the sluggish global economy and November purchasing managers' indexes showed the giant manufacturing sector was shrinking.

CASS said it saw GDP growth easing in 2012 to 8.9 percent from its 2011 call of 9.2 percent.

It expected consumer prices to rise by 4.6 percent in 2012, down from a 2011 forecast of 5.5 percent but still above the 4 percent level the government regards as comfortable.

It also projected China's fixed-asset investment growth would slow to 22.8 percent in 2012 from an estimated 24.5 percent this year.

But the think tank -- one of China's foremost institutions, staffed by a mix of influential economists and many former senior officials -- cautioned against the need for significant stimulus to fight the moderation in growth.

"The direction of macro-controls should not be shifted towards loosening from tightening to support growth. Economic growth will slow steadily and appropriately, it's best to maintain an 8-9 percent growth rate," CASS said in a "blue book" of economic forecasts.

Some analysts suggest China has already shifted to pro-growth policies after the central bank cut bank reserves on Dec 5 by 50 basis points to 21 percent for big banks.

TOUGH YEAR AHEAD

China's economy faces a tough 2012, squeezed by rising costs at home and fewer orders from abroad, with many economists expecting full-year growth to come in below 9 percent for the first time since 2001.

Wang, director of the commerce ministry's foreign trade department, told the earlier news conference that Chinese exporters could find conditions severe.

"Next year, there won't be fundamental improvement in Europe or the United States, and costs at home will stay as high as this year, so the foreign trade situation will be severe next year," Wang said.

But Wang added that China may still manage to sell more products in 2012 than in 2011 "as long as the European financial crisis does not run out of control".

Economists at UBS reckon a euro zone recession causing a fall in imports only half as deep as that experienced in 2008/09 would wipe around 1.7 percentage points off Chinese GDP in 2012.

Leaders from all 27 European Union countries have a summit meeting in Brussels this week and will vote on a Franco-German plan to change the EU treaty to impose mandatory penalties on euro zone states that exceed deficit targets, aiming to restore market trust and prevent the crisis spiraling out of control.

INCREASING IMPORTS

Wang said China will work particularly hard to increase its imports from Europe and the United States in 2012 as a way to help the struggling rich economies.

China's trade surplus is expected to be $161 billion in 2011, with exports rising 20.4 percent and imports increasing 24.7 percent, CASS said.

In the official white paper, the Chinese government reiterated that it does not deliberately pursue policies designed to deliver a trade surplus and that China is moving towards balancing exports and imports.

Vice Minister Chong added that the government is not manipulating the exchange rate of the yuan. Many Western lawmakers argue China holds back the rate of appreciation of the yuan, giving Chinese exporters an unfair trade advantage.

"The Chinese government has never manipulated the exchange rate, and our exchange rate is a floating one based market changes and demands," Chong said.

"As for the future, I believe the yuan could be stronger or weaker -- it will move like a wave," he said.

China's yuan has lost about half a percent of its value against the U.S. dollar, since strengthening to a record 6.3354 to the greenback on Nov 14. It is still about 3.5 percent stronger against the dollar so far this year.

The official dollar/yuan rate is set each day by China's central bank with data issued through the Shanghai-based interbank market, the China Foreign Exchange Trade System (CFETS), on the market's website, www.chinamoney.com.cn.

The dollar/yuan exchange rate may rise or fall 0.5 percent from the mid-point each day.

(Additional reporting by Wang Lan, Shen Yan, Zhou Xin and Nick Edwards; Editing by Ken Wills and Neil Fullick)

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