CHALLENGES FOR CHINA IN AN UNSTABLE FINANCIAL WORLD

Chinese President Warns Nation Losing Its Economic Edge

BEIJING — Chinese President Hu Jintao warned that China has
started to lose its competitive edge in trade amid the
global financial crisis, as he told Communist Party leaders
the challenge posed a test to the government's ability to
rule, state media reported.

China's economic growth is expected to fall to about 9
percent this year, down from last year's 11.9 percent. That
would be the fastest of any major economy, but Chinese
leaders worry about possible unrest as unemployment rises,
especially in export industries where factories are
shutting down as global demand plummets.

"External demand has obviously weakened and China's
traditional competitive advantage is being gradually
weakened," Hu said, according to the Communist Party's
official People's Daily newspaper.

Hu told members of the Communist Party's powerful Political
Bureau that the financial meltdown posed critical
challenges to a government that has staked its legitimacy
in part on competent management of a rapidly developing
society.

"Whether the pressures can be turned into a driving force
and the challenges turned to opportunities ... is a test of
our ability to control a complex situation, and also a test
of our party's governing ability," Hu said.

Hu urged party leaders to step up efforts to reform its
economic growth model to achieve development that is
sustainable.

He said greater effort should be made to raise living
standards, use resources more efficiently and develop rural
and urban areas, the report said.

The remarks come after China's top economic planner Zhang
Ping, chairman of the Cabinet's National Development and
Reform Commission, warned Thursday that the impact of the
global financial crisis is worsening and that rising job
losses could fuel instability.

But a government researcher said that despite the impact of
the global slowdown, the country's economy is expected to
grow by 10 percent next year as domestic consumption grows
with rising personal incomes.

"Personal income continues to increase as millions of
migrant workers flow into the city to get their lives
improved. Enlarging demand for houses and autos will form
huge and lasting consuming power," said Zhang Liqun, a
researcher at a think tank attached to the Cabinet's
planning agency.

On Wednesday, Beijing announced its biggest interest rate
cut in 11 years to increase consumer and company spending.
A multibillion-dollar stimulus package launched on Nov. 9
aims to boost growth through heavy new spending on
construction, tax cuts and aid to the poor and farmers.

Beijing plans to spend 18 trillion yuan ($2.6 trillion) in
2009 alone to help blunt the impact of the global financial
crisis, using the immense capital accumulated over years of
double-digit economic growth and booming exports to build
railways, roads, airports and electricity networks.