China's president warns of deepening economic downturn

BEIJING, Nov 30 (Reuters) - Chinese President Hu Jintao has warned that his country's competitiveness and trade strength are being threatened by a sustained global economic downturn, testing the grip of the ruling Communist Party.

Hu made the warning at a Saturday meeting of the Politburo, the Party's 25-member inner-council, which dwelt on the challenges China faces as export demand drops, forcing companies to shed workers, the Xinhua news agency reported late that day.

His blunt words suggested China sees no quick end to worsening conditions, which this week led a state thinktank to forecast annual growth will slow to 8 percent this quarter from 9 percent in the third quarter, skidding close to the minimum 7 percent officials see as safe for maintaining social stability.

"In this coming period, we will starkly confront the effects of the sustained deepening of the international financial crisis and pressure as global economic growth clearly slows," Hu told the senior officials.

The slowdown is "clearly reducing external demand and exerting pressure to steadily weaken our country's traditional competitive advantages," Hu said.

The Chinese president's comments are the latest in a string of official warnings about the country's once breathless growth record, and Hu stressed that the potential problems are social and political, as well as purely economic.

"Whether we can turn this pressure into momentum, turn challenges into opportunities, and maintain steady and relatively fast economic development...is a test of our Party's capacity to govern," said Hu, who is also party chief.

The Politburo meeting was a "collective study" session on Hu's keynote policy of a "scientific outlook of development" -- one seeking to replace an obsessive focus on GDP growth with a more balanced one also focused on equity and environmental sustainability.

That programme has come under pressure as officials have scrambled to shore up growth and jobs.

The government unveiled a 4 trillion yuan ($586 billion) fiscal package earlier this month to counter the impact of the global financial crisis, though it is still unclear how much will be new spending. The central bank followed up this week with its biggest cut in interest rates since the 1997 Asian financial crisis.

Hu said the downturn made transforming China's traditional mode of export-driven, resource-squandering development even more urgent. But he also said growth was more crucial than ever.

"Under current conditions, we must keep an even tighter focus on economic development," he said. (Reporting by Chris Buckley; Editing by Kim Coghill)