China's exports growth is expected to halve in 2012 from this year as turmoil in Europe and the United States hits demand for Chinese products, a senior government researcher said Thursday.

Shipments are expected to grow 10 percent next year, compared with a forecast 20 percent, and drag economic growth below nine percent for the first time in more than a decade, Yu Bin told a media briefing.

But a "sharp plunge" in economic growth was unlikely because domestic consumption was expected to pick up, said the director general of the macroeconomic research department under the State Council, China's cabinet.

Gross domestic product growth could slow to 8.5 percent next year but it would still be within the government's annual target of 7-8 percent, a level seen as necessary to create enough jobs to keep a lid on social unrest.

The economic crises in Europe and the United States had "exerted a strong impact on China's trade" and exports could even contract "for a certain period of time" next year, Yu warned.

The grim forecast adds to mounting evidence that China's economy is slowing and will ratchet up pressure on Beijing to further loosen policies to prevent the world's second biggest economy from suffering a painful hard landing.

Data released earlier Thursday showed China's manufacturing activity contracted in December while foreign direct investment fell for the first time in 28 months as crises in the United States and Europe dragged on the economy.

Late last month China cut the amount of money banks must hold in reserve for the first time in three years to spur lending and counter the turmoil overseas, but policymakers appear to have ruled out any major stimulus packages.

Senior Chinese leaders on Wednesday vowed to maintain a "prudent monetary policy and proactive fiscal policy" in 2012, suggesting they will move cautiously to open credit valves to avoid reigniting inflation.

Beijing also pledged to keep property market restrictions in place to bring housing prices back to "reasonable levels".

China manufacturing activity still shrinking: HSBC
Beijing (AFP) Dec 15, 2011 - China's manufacturing activity continued to contract in December, banking giant HSBC said Thursday, as exports are hurt by the ongoing crises in the crucial US and European markets.

The preliminary HSBC purchasing managers' index (PMI) reached 49 in December, slightly better than the 47.7 in November, as consumers from New York to Paris cut back on holiday spending due to the dire outlook.

A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction. The final figure will be released on December 30.

The data adds to mounting evidence that export-driven China is slowing and will ratchet up pressure on Beijing to further loosen policies to prevent a painful hard landing in the world's second largest economy.

"With inflation quickly shifting to disinflation, the Chinese government can and should make more aggressive easing on both fiscal and monetary fronts to stabilise growth and jobs," HSBC chief economist Qu Hongbin said.

Qu also warned that "growth momentum remains weak with additional downside risks from exports and the property market not yet fully filtering through".

But Chinese leaders on Wednesday vowed to maintain a "prudent monetary policy and proactive fiscal policy" in 2012, suggesting they will move cautiously to open credit valves.

Beijing is anxious to prevent a sharp slowdown in the economy but at the same time it wants to avoid reigniting inflation, which hit a more than three year high of 6.5 percent in July and has the potential to trigger unrest.

Late last month China cut the amount of money banks must hold in reserve for the first time in three years to spur lending and counter turmoil in Europe and the United States that threatens to derail the economy.

Manufacturing activity contracted in November for the first time in 33 months, while consumer prices rose at their weakest pace in more than a year and industrial output growth hit its lowest level in more than two years.