UPDATE 2-China's Zhou flags risks to 2009 growth goals

(Adds comments on trade, foreign exchange reserves)

By Tamora Vidaillet

BASEL Jan 12 (Reuters) - China's central bank is still basing its policies on the assumption that the economy will grow eight percent this year, the bank's head said on Monday, but it knows that growth will be at the mercy of external factors.

Governor Zhou Xiaochuan told reporters that predicting the economy was difficult during a crisis and risks abounded for any forecasts.

He made his comments on the sidelines of a central bankers' meeting at the Bank for International Settlements (BIS) as worries intensify over the depth of the slowdown in the world's fourth-largest economy, once thought to be virtually immune to global weakness.

"Most people believe it (8 percent GDP growth for 2009) is a reasonable goal but we know we need to watch the international situation," Zhou said. "No one really has good enough empirical data to show how to predict (in) the crisis period."

Chinese authorities' "policy implementation and coordinated actions are targeted with (an) 8 percent growth rate, at least for right now", he said, adding: "There will certainly be risks to both sides. This is only a prediction, forecasting data."

Government economists have expressed confidence the authorities can meet the growth goal deemed necessary to create enough jobs for millions joining the workforce each year.

But independent analysts have predicted growth could slow to as little as 5 percent as factory output growth grinds to a halt and exports shrink in the face of falling global demand.

MODERATE SLOWDOWN

Chinese economic growth probably slowed to an annual 7 percent in the fourth quarter of last year, according to a median forecast of 28 economists polled by Reuters.

That would mean the country registering its weakest expansion in nearly a decade and would compare with 9.0 percent growth in the third quarter and 11.9 percent in all of 2007.

Asked whether he had been taken by surprise by the pace of China's economic slowdown until now, Zhou said:

"It's a moderate slowdown. Certainly we will keep a very good vigilance to prevent a sharp slowdown but up to now I think we can see in comparison with many other countries it is a moderate slowdown."

"We still have GDP growth, industrial production growth ... a very small decline in export growth," he said.

Export growth had probably fallen by between 2 and 4 percent on the year in December while imports had probably declined, he said, before the expected release of the data on Tuesday.

From a production point of view, China's performance was still faring relatively well, he said, adding that the country needed to ensure strong policies to prevent any sharp deceleration.

China is relying on massive spending in the form of a 4 trillion yuan ($585 billion) stimulus package to cope with the economic challenge and is working out plans to support slumping industries such as autos and textiles.

FOREX RESERVES

Turning to foreign exchange reserves, Zhou said China's stockpile, the world's largest, was still growing albeit at a slower pace than it had previously.

Zhou gave no direct answer to a question on whether the reserves had fallen for the first time in October and declined since, pointing out that volatility in the value of the dollar against other currencies could weigh on absolute levels.

"I think we should understand that the U.S. dollar is a reporting currency, so any significant movement of the U.S. dollar against the other currencies has a big impact to the reporting number."

This may not necessarily reflect any serious changes to reserve levels, he said, adding that Chinese reserves were diversified into different currencies and assets. ($1=6.836 Yuan) (Additional reporting by Krista Hughes and Sven Egenter; Editing by David Stamp)