Beijing: Chinese President Hu Jintao said a slowdown in exports is putting downward pressure on the world’s second-biggest economy, and he pledged to boost domestic demand and promote more balanced growth.

“Economic growth is facing notable downward pressure, some small and medium enterprises are facing a hard time and exporters are facing more difficulties,” Hu said yesterday at the Asia-Pacific Economic Cooperation CEO Summit in Vladivostok, Russia. “We have an arduous task of creating jobs for new entrants to the laboyr force.”

The slowdown is increasing pressure on Hu as China tries to ensure a smooth transition of power to a new generation of leaders at a once-in-a-decade Communist Party Congress this year. Europe’s debt crisis and anaemic US growth may hinder a rebound in exports while at home a slump in earnings is deterring companies from spending and banks face rising debts.

Asia’s biggest economy expanded 7.6 per cent in the second quarter from a year earlier, the slowest pace in three years, after the government moved to counter inflation and surging property prices after its 2009 stimulus. Exports in July rose 1 percent from a year earlier and shipments in the first seven months rose 7.8 per cent, compared with a 23.4 per cent rise in the same period in 2011.

UBS AG and ING Groep NV yesterday cut their full-year forecasts for economic expansion to 7.5 per cent, which would be the slowest pace in 22 years.

Property Bubble

“They’ve screamed from the rooftops for three years they are trying to slow things down to kill inflation and to kill the property bubble,” Jim Rogers, chairman of Singapore-based Rogers Holdings, said in a September 7 interview in Vladivostok. “Now it’s happened.”

The deceleration in China’s economic growth will probably extend into a seventh quarter, with ING estimating a slowdown to 7.1 percent and Bank of America Corp projecting 7.4 per cent for the three months ending September.

Data due tomorrow may show industrial output growth slowed to 9 per cent in August from a year earlier, the slowest pace this year, according to the median estimate in a Bloomberg News survey of 35 economists. Exports last month probably rose 2.9 per cent from a year earlier, according to a separate survey before a September 10 report. Overseas shipments climbed 24.5 per cent in August last year.

Hu said China’s economy was characterised by a “lack of balance, coordination and sustainability” and that the country would promote “inclusive growth” to improve people’s lives.

Rising Inequality

China’s Gini coefficient, a measure of inequality, has risen more than any other Asian economy in the last two decades, Murtaza Syed, the International Monetary Fund’s resident representative in Beijing, said in February. The government hasn’t released an overall Gini figure since 2000 although Bo Xilai, the ousted former Communist Party secretary of Chongqing, said in March it had exceeded 0.46, above the point that triggers social unrest.

“The route we’ve taken is to allow a portion of the population to grow wealth before everyone else,” China Construction Bank Corp. Chairman Wang Hongzhang said in a panel discussion at the APEC summit yesterday. “By 2050 we hope to have a society where a large part of the population can share in that equitably.”

Hu’s standing with international investors has suffered ahead of the leadership change later this year. In a quarterly Bloomberg Global Poll published yesterday, two in five voiced pessimism about the impact of his policies on the investment climate in China. That’s up from less than one in three in May and is the highest negative reading since the poll began asking that question two years ago.

Subway Expansion

China this week announced approvals for infrastructure spending, including 800 billion yuan ($126 billion) in new subway and rail projects, to support growth as Europe’s debt crisis crimps exports and a property crackdown damps domestic demand. The National Development & Reform Commission, the top planning agency, said September 6 it approved plans to build 2,018 kilometres of roads, a day after it backed plans for subway projects in 18 cities.

Chinese shares surged on the news, with the benchmark Shanghai Composite Index closing 3.7 per cent higher yesterday, the biggest advance since Jan. 17.

By focusing on infrastructure spending to boost growth, Hu and Premier Wen Jiabao may risk exacerbating the imbalances they have pledged to combat.

‘Unintended Consequences’

Spending on roads, bridges, subways and other public-works projects surged in 2009 and 2010 as much of a 4 trillion yuan ($586 billion at the time) stimulus, and an unprecedented expansion in bank lending, was directed toward local government projects. That led to a rise in debt at the local level to at least 10.7 trillion yuan as of 2010, according to an official audit.

“The unintended consequences of this are legion,” Tim Condon, chief Asia economist at ING in Singapore, wrote in a note yesterday, referring to the infrastructure spending. “They include corruption scandals - for example, the railways minister was sacked and expelled from the Party over corruption charges — poor quality construction — the collapse of a section of the Yangmingtan bridge in Harbin city is emblemati and stretched local government finances.”

Ma Kai, a State Councillor and general secretary of the State Council, China’s Cabinet that’s headed by Premier Wen Jiabao, said today that China’s economic growth is sustainable and has “great potential.”

“We will turn the huge potential demand of 1.3 billion residents into real demand,” he said at an international investment forum in the eastern city of Xiamen. “I believe the unprecedentedly large and rapidly growing China market will bring more opportunities to foreign investors.”