China should introduce more measures to boost the economy as key economic data for last month suggested a dismal outlook for growth, said analysts.

"The sharp contraction in trade and foreign direct investment highlighted urgently the need for more aid to exporters and companies in trouble because of the faltering global economy," said Li Maoyu, an analyst with Changjiang Securities Co. "Meanwhile, the abrupt moderation in inflation growth cleared the hindrance for carrying out an active fiscal policy and looser monetary measures," he added.

China's exports, which take up more than a third in the basket of its economy, unexpectedly fell 2.2 percent last year from a year earlier - the first decline in seven years and the biggest since April 1999.

Imports slumped even sharper by 17.9 percent on an annual basis and pushed the nation's trade surplus to an all-time high of US$40.1 billion last month.

China's foreign direct investment fell 36.5 percent last month, down drastically from a 2-percent contraction a month earlier. The country's fiscal revenue also dropped 3.1 percent last month to 379.2 billion yuan (US$55.3 billion) amid the slowing economy and more tax cuts.

The only bright spot was that inflationary pressure has eased. The Consumer Price Index, the main gauge of inflation, grew at the slowest pace in nearly two years of 2.4 percent while the Producer Price Index, the factory-gate inflation yardstick, slowed to a 2-percent gain from a year earlier, the lowest in 31 months.

Peng Ken, a Citigroup economist, said the dramatic deterioration in China's trade suggested downturns similar to what happened in the middle of 1990s and 1998 when the economy slowed down significantly.

"Other data such as industrial output may also suffer big drops, and more pain is likely next year," said Peng.

He said the central bank may be inclined to allow the Chinese currency to weaken further under the circumstances. But it would not be a long term fix for China's current economic troubles.

The long-term fix, in the view of Sun Lijian, a finance professor at Fudan University, should rely on a robust and growing domestic demand. He said that to boost consumption, the country should first revive its real estate and equities market.

"For consumers, if the stock and property markets remain sluggish, people would feel a loss of value in their assets and this may curb spending," Sun said. "Such feelings can hardly be compensated by any tax cuts or subsidies. So the priority should be to carry out measures to revive the two markets."

Decision makers who attended the Central Economic Work Conference, which concluded on Wednesday, rolled out a blueprint for next year to ensure a stable currency and said policies would focus more on boosting expenditure in public areas, with emphasis on supporting the property and stock markets.

Some economists also suggested more interest rate cuts which would have a faster effect on the economy than a fiscal stimulus.

(Shanghai Daily December 12, 2008)