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Chinese economy facing downward pressure

Chinese Ministry of Industry and Information Technology warned that the economy still faces downward pressure and domestic and external situations are grim as industrial output posted its slowest growth in nearly three years.

Mr Zhu Hongren the ministry chief engineer said difficulties faced by companies and the consequences of sustained sluggish external demand should not be underestimated.

He said that the lower target will ease environmental pressure which was caused by rapid economic growth and induce industries to produce higher quality products.

He added that "We need to pay more attention to the possibility that the economy might weaken further. He also said however rising costs and difficulty in securing finance are still causing problems for firms. Increasing labor costs will further squeeze margins as the average salary is predicted to rise 20% this year.

According to figures released by the National Bureau of Statistics industrial output grew by 11.6%YoY in the first quarter of 2012, the slowest growth since July 2009. The figure hit 20% a year ago.

China economy expanded 8.1% in the first three months from a year earlier, the smallest expansion in almost three years and the fifth straight quarterly deceleration.

Data this week showed manufacturing may shrink for a sixth month in April and a leading index rose in March at a slower pace adding to evidence growth is moderating. The ministry said Chinese companies are facing increasing operational difficulties. Higher electricity and fuel prices are pushing up costs and average wages across the nation this year may increase by 20%.

The ministry said in December it would set an industrial output growth target of about 11% for this year the same goal as 2011 when production actually expanded 13.9%. To propel the growth of small and medium-sized enterprises, the State Council introduced a package of supportive measures in February.

China has more than 10 million SMEs accounting for more than 95% of the country companies.

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