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UPDATE 2-China's Wen says maintaining growth is top priority

Published 11/02/2008, 01:27 AM

(Adds details, PMI data, byline)

By Chris Buckley

BEIJING, Nov 2 (Reuters) - Maintaining strong and stable economic growth despite global turmoil is China's main priority, Premier Wen Jiabao has written, warning of growing domestic risks from a worldwide economic downturn.

Wen made the warning in an essay for the ruling Communist Party's ideological journal, Seeking Truth (Qiushi), the China News Service reported on Sunday.

The chief macro-economic task of his government is "successfully maintaining the balance between the stable and relatively fast economic development and containing inflation," Wen said.

"Unfavourable changes" in the international economy may make it more difficult to achieve that balance, Wen wrote in the latest issue of the magazine, saying the priority for now is shoring up economic growth.

"Against the current international financial and economic turmoil, we must must give even greater priority to maintaining our country's steady and relatively fast economic development," he wrote.

"We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development...and factors damaging social stability will grow."

"Seeking Truth" appears twice a month, with the first issue published on the first of the month. It has not yet arrived with most subscribers, but the website of the official China News Service (www.chinanews.com.cn) carried the full text of Wen's long, 14,000-character policy overview in Chinese.

ANXIETY ON ECONOMY

It appears at a time of growing anxiety over the country's growth prospects.

China's economy grew 11.9 percent in 2007, but that rate slowed to 9.9 percent in the first three-quarters of this year.

Saturday brought more alarming news about the state of the economy, with an official monthly survey showing China's manufacturing sector contracted sharply in October.

The purchasing managers' index fell to 44.6 percent, the lowest since the China Federation of Logistics and Purchasing began to compile it in January 2005, the CFLP said on Saturday.

A reading below 50 indicates contraction.

China cut interest rates on Wednesday for the third time in six weeks to help the world's fourth-largest economy ride out the reverberations of the global financial crisis.

The government has also increased tax rebates for exporters of labour-intensive goods and lowered down-payments and mortgage rates for first-time home buyers. Infrastructure spending is also being ramped up.

A Chinese central bank spokesman said on Friday authorities were now no longer imposing strict limits on bank lending, as they seek to shore up growth.

The government will closely observe the effects of such policy moves in coming months, seeking to lay a firm foundation for growth next year, Wen said.

But China's heavy dependence on exports may "increase the risk of external shocks," Wen said, and called for deeper reforms to ease trade surpluses.

Yet even with global demand sagging, inflation remains a long-term worry, Wen said. China's combination of fast growth and low inflation in past years was exceptional and may not endure.

Consumer price inflation, which hit a 12-year high of 8.7 percent in February, fell to 4.6 percent in September.

"To judge from international experience, it is very difficult to maintain high growth and low inflation over the long term," Wen wrote.

While international oil prices have fallen, they "remain fluctuating at a high level and inflationary pressures remain large," he added.

"These unfavourable factors have already and will continue to affect our country," he wrote. "There are also many pronounced problems in domestic economic activity."

Wen wrote that "price pressures have not fundamentally eased, and supply and demand for coal, power, oil and transport remain tight." (Editing by Lincoln Feast)

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