Chinese president says China losing competitive edge as financial turmoil dampens demand

China's economic growth is expected to fall to about 9 percent this year, down from last year's 11.9 percent. That would be the fastest of any major economy, but Chinese leaders worry about possible unrest as unemployment rises, especially in export industries where factories are shutting down as global demand plummets.

"External demand has obviously weakened and China's traditional competitive advantage is being gradually weakened," Hu said, according to the Communist Party's official People's Daily newspaper.

Hu told members of the Communist Party's powerful Political Bureau that the financial meltdown posed critical challenges to a government that has staked its legitimacy in part on competent management of a rapidly developing society.

"Whether the pressures can be turned into a driving force and the challenges turned to opportunities ... is a test of our ability to control a complex situation, and also a test of our party's governing ability," Hu said.

Hu urged party leaders to step up efforts to reform its economic growth model to achieve development that is sustainable.

He said greater effort should be made to raise living standards, use resources more efficiently and develop rural and urban areas, the report said.

The remarks come after China's top economic planner Zhang Ping, chairman of the Cabinet's National Development and Reform Commission, warned Thursday that the impact of the global financial crisis is worsening and that rising job losses could fuel instability.

On Wednesday, Beijing announced its biggest interest rate cut in 11 years to increase consumer and company spending. A multibillion-dollar stimulus package launched on Nov. 9 aims to boost growth through heavy new spending on construction, tax cuts and aid to the poor and farmers.

Beijing plans to spend 18 trillion yuan ($2.6 trillion) in 2009 alone to help blunt the impact of the global financial crisis, using the immense capital accumulated over years of double-digit economic growth and booming exports to build railways, roads, airports and electricity networks.

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