China growth slows as crisis unfolds

South Korea's €96 billion financial bailout gave its embattled currency a lift yesterday but did not dispel wider concerns about a global economic downturn as China reported single-digit growth for the first time in four years and Dutch bank ING sought government funds.

China's gross domestic product rose much more slowly than expected in the third quarter, raising uncertainties about the world's main source of economic growth.

Bank of Japan Governor Masaaki Shirakawa said that the growth in the world's second-biggest economy is highly likely to remain sluggish as countries elsewhere stutter.

"Tensions are heightening in global financial markets and downside risks exist for the world economy," he said in a speech.

China reported that its economy - the world's fourth-biggest - grew nine per cent in the third quarter from a year earlier, well below forecasts of 9.7 per cent.

That compared with 10.1 per cent in the second quarter, and marked the first time expansion had slipped into single digits in at least four years. Industrial output dropped to a six-year low.

"It's very obvious now that economic growth is slowing quickly, although some indicators such as exports are holding up due to lagging effects," said Zhang Fan, analyst with Tebon Securities in Shanghai.

The Cabinet of German Chancellor Angela Merkel was expected to approve a €500 billion rescue package that sets strict conditions on participating banks, including limits on managers' salaries, bonuses and severance, a draft seen by Reuters shows.

The central bank governor said economic growth will probably slow next year, but would not contract this year. "I don't think such a situation will take place," Bank of Korea Governor Lee Seong-tae told lawmakers when asked if Asia's fourth-largest economy will post its first annual decline since the Asian financial crisis a decade ago.

He also said his bank would take into account slowing economic growth and continued current-account deficits when managing its future interest rate policy, but declined to say whether the central bank would further cut interest rates as many investors expect.

"We expect the package to go a long way towards stabilising the jittery financial markets in Korea," Goldman Sachs economists wrote in a note yesterday.

"The decisive move of the government will likely dispel lingering concerns of investors about the usability of the foreign reserves, relieve much of the pressure in the currency markets, and help support bank stock prices, which dropped the most in the region last week," they said.

The Dutch government agreed to pump some €10 billion into ING after shares in the country's largest listed bank slumped by a quarter in the latest trading session.

ING said it will sell its Taiwan life insurance business to Fubon Financial for €445 million as it scrambles to raise cash.

The head of the European Central Bank pledged on Sunday to do whatever it takes to restore confidence to rocky markets, as governments worldwide pour cash into banks and markets hit by the financial storm that has toppled banks in the US and Europe.

Efforts to break open a liquidity lock-down between banks appeared to be paying off in the form of tighter credit spreads.

ECB Governing Council members Erkki Liikanen of Finland and George Provopoulos of Greece said rates would fall as trust increases between banks following the measures taken by central banks and governments.

Top White House economic adviser Edward Lazear told CNN the first stages of that process are under way. "The numbers are going in the right direction," he said.

Still, he said, "parts" of the US seem to be in recession based on jobless rates much higher than the national average.

Spain became the latest country to say it would fall into recession next year if the global economy suffered that fate.

In the Middle East, a newspaper said the United Arab Emirates would inject €14 billion into long-term bank deposits, and Oman's Chamber of Commerce and Industry called for a cash injection into banks for financing.