Slump in exports and property industry is expected to keep China's industrial growth at low pace in the short term, which will continue to affect the world's third largest economy, according to a research report released by the State Information Center on Thursday.

The report said the dim situation will continue as the financial crisis continues to depress the global economy. International trade will further contract.

The annual industrial output growth slowed to 3.8 percent in January and February owing to weak global demand, a much slower growth pace from a year earlier when it was 15.4 percent.

The sharp decline was mainly caused by the country's struggling heavy industry, which dropped to a 2.7 percent growth in the first two months year- on- year, down from the 17.8 percent in March of 2008 because of an export plunge and a large inventory of unsold homes.

To counter the negative effect, China rolled out the four-trillion-yuan (US$585 billion) stimulus package and a series of plans to revive key industries, which, the report said, started taking effect.

The government reiterated the country can meet its 2009 growth target of 8 percent.

Experts filing the report said the global economic recession will further dampen China's exports, which tumbled 25.6 percent in the year to February.

The export delivery value of industrial products has decreased four consecutive months since November of 2008 which saw a 5.2 percent drop year on year. The slide expanded to 17 percent in the first two months, involving 32 industrial sectors out of the total 39, including nonferrous metal, machinery and chemical.

Overcapacity in certain industries resulted in increased inventory and reduced output, which forced many enterprises to cut or even stop production, according to the report.

For example, steel capacity will exceed 650 million tonnes in 2009, compared with 500 million tonnes of demand. Auto capacity will hit 12 million units, with more than 9.5 million of demand.

A huge inventory of houses tops the problem. At the end of 2008, the area of unsold houses was 164 million square meters, up 21.8 percent from a year earlier. But sales revenue and area of sold houses fell 19.5 percent and 18.5 percent, respectively.

The report said it will take a long time to reduce the inventory and the sagging situation in the property industry will affect a series of sectors, ranging from steel to home appliances.

Experts suggest cutting certain taxes for enterprises to ease financing difficulty during the tough period and encourage more lending to support development.

The government should consider lending in Renminbi to credible importers, in a bid to increase exports of industrial products, and raising export tax rebate for electromechanical products as exports of such products have become a major driver of exports since the financial crisis started to bite.

(Xinhua News Agency March 19, 2009)