China sounded a gloomy note on Tuesday about its export prospects, warning in particular that belt-tightening by deeply indebted European Union governments would dampen demand for the country's goods.

Calling the trade picture still complicated and grim, the Ministry of Commerce said high growth in exports in the first half would give way to slow growth in the second half.

The sovereign debt crisis has made many EU countries shift to fiscal austerity from fiscal expansion, which will greatly restrict consumption and investment growth in the EU, the ministry's spokesman, Yao Jian, told a news conference.

Cheap, labor-intensive products would be less vulnerable to drooping European demand than more expensive, discretionary goods, he added.

Spain, Italy, Germany and non-euro member Britain are among EU countries that are tightening their budgets after Greece had to be bailed out in April, raising a red flag about the sustainability of public finances across Europe.

Furthermore, Brazil, India and other emerging economies have started to tighten monetary policy, the Commerce Ministry said.

The room for the further growth of Chinese exports is limited, Yao said.

As a result, the ministry would keep in place policies aimed at supporting external demand for Chinese goods, including retaining export tax rebates.

Chinese exports grew 43.9 percent in June from a year earlier, beating forecasts, after 48.5 percent year-on-year growth in May. However, imports have also boomed, meaning net exports barely contributed to first-half growth in gross domestic product, according to the National Bureau of Statistics.

Export growth in the second half of this year will slow to just 16.3 percent, giving full-year growth of about 24.5 percent, the State Information Center, a leading government think tank, said in a report published on Monday.


Wang Jun, a researcher with the China Center for International Economic Exchange, a think tank under the National Development and Reform Commission, agreed that China could not escape the fallout of the euro zone's debt troubles.

I think growth in China's exports will show a big slowdown, especially in the fourth quarter. It's very likely that we'll see single-digit growth by the end of this year, he told a forum.

A staunch defender of China's exporters, the Ministry of Commerce has a tendency to stress the difficulties facing the sector rather than to point out that China has considerably increased its share of global markets during the economic crisis.

But the Ministry of Industry and Information Technology also raised questions about the robustness of China's export rebound due to the weak foundation of the world recovery.

Although the economy is heading in the right direction, there are many difficulties and problems, Zhu Hongren, a spokesman for the ministry, told a separate news conference.

A lot of small export firms were experiencing financing strains, while wages had gone up by more than a fifth in the manufacturing strongholds of the Yangtze and Pearl River Deltas.

Like exports, factory growth would slow over the rest of 2010 because of a high base of comparison in 2009, the ministry said.

But Zhu said the moderation would help China to upgrade its economy and lay the basis for more sustainable growth.

The slowdown is not only appropriate, but will also help to facilitate adjustment in China's industrial structure and economic growth, he said.


Beijing is redoubling its efforts to weed out obsolete, energy-guzzling plants in a drive to meet ambitious energy-intensity targets by the end of 2010.

China has overtaken the United States as the world's largest energy consumer, according to the International Energy Agency, an assertion denied on Tuesday by a Chinese official.

Despite the expected slowdown, full-year factory output growth may be higher than the 11 percent targeted at the start of 2010, the Ministry of Industry said.

The Ministry of Commerce was also optimistic about consumer spending. Retail sales would keep growing rapidly over the rest of 2010 thanks to rising incomes and government policies to encourage consumption, the ministry said.

Overall, economists expect a further slowdown in economic growth, which moderated to an annual rate of 10.3 percent last quarter from 11.9 percent in the first three months of 2010.

With growing signs of economic slowdown, we believe that the government will now start to discuss possible policy adjustments, Ha Jiming and Xing Ziqiang, economists at China International Capital Corp, said in a report.

The government could accelerate the approval of investment projects, relax curbs on property speculation and loosen its liquidity controls in addition to keeping interest rates and banks' required reserves unchanged, they said.

(Additional reporting by Aileen Wang, Chen Aizhu and Langi Chiang; Writing by Alan Wheatley; Editing by Tomasz Janowski)