China Says Global Woes May Spill Over, Growth to Slow

By Zhang Dingmin and Zhao Yidi

Sept. 27 (Bloomberg) -- The U.S. financial crisis will dent consumption and spill over to the rest of the world including China, according to bankers and government officials meeting at the World Economic Forum in eastern China's Tianjin.

``We are in the worst crisis since the Great Depression,'' said Citigroup Inc.'s Senior Vice Chairman William Rhodes. ``We are in a period of a tremendous lack of confidence'' where financial institutions require fresh funds to restore consumer trust, he said.

U.S. Treasury Secretary Henry Paulson has proposed a record $700 billion rescue package for U.S. financial institutions and the Securities and Exchange Commission banned short selling of insurance, bank and brokerage stocks. The unprecedented bailout has raised concern in China, prompting officials including bank regulator Liu Mingkang to slow the introduction of new financial products such as derivatives and futures contracts.

China's annual economic growth may slow to between 9 percent and 9.5 percent, Liu said without specifying the period, as the U.S. financial crisis may crimp consumption, affecting global growth. China's 2007 economy expanded 11.9 percent.

``The most essential task now for Chinese companies is to survive, instead of thinking about overseas acquisitions,'' said Li Rongrong, director of the State-Owned Assets Supervision and Administration Commission, which holds the government's stakes in companies. ``The major difficulty faced by state companies is a significant decline in market demand.''

Opinions Divided

Bankers, corporate executives and officials gathering in Tianjin are almost equally divided on whether central banks should use taxpayers' money to bail out failed financial institutions. Chinese regulatory officials may collaborate with U.S. officials to contain the impact of the financial crisis, Rhodes said.

The People's Bank of China is ``working closely with the U.S. Federal Reserve on a series of measures that could be taken,'' Rhodes said, citing a telephone conversation with a senior member of the Fed. He didn't elaborate.

China's bank regulator is also in ``close consultation'' with the Fed, Rhodes said without giving details.

``All countries should take proactive measures to deal'' with the financial crisis, and prevent it from spreading, Chinese Premier Wen Jiabao said today in a televised speech at the World Economic Forum in eastern China's Tianjin. ``We should strengthen our cooperation,'' he said.

``When economic and financial crisis occur, economists and entrepreneurs, people and politicians, should be confident,'' Wen said. ``At the moment, confidence is more precious than gold'' and China's ``stable and sustained growth is our most important contribution to the world economy,'' he said.

To contact the reporter for this story: Zhao Yidi in Beijing at at yzhao7@bloomberg.net