Dec. 16 (Bloomberg) -- China’s central bank Governor Zhou Xiaochuan said interest rates may fall again this month after exports declined, inflation slowed and a report today showed property investment cooled.

“From now until the beginning of next year is full of interest-rate-cut pressure,” Zhou said in Hong Kong, where the Financial Stability Forum is meeting. Consumer prices are “going down and sometimes even faster than we think,” he said.

China’s economy, the world’s fourth largest, may be heading for its slowest growth in two decades as the global financial crisis cuts demand. The government pledged Dec. 13 to boost liquidity after cutting interest rates last month by the most in 11 years to spur lending and consumption.

“They realize now that the risk is of 5 to 6 percent growth next year,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “They will use interest rates, money supply, bank lending -- the full spectrum of monetary stimulus. It’s short, sharp, shock treatment.”

The CSI 300 Index of stocks fell 1.1 percent as of 1:29 p.m. in Shanghai on speculation that a weakening economy will cut company profits. The yuan traded at 6.8474 against the dollar from 6.8500 before the investment report.

Spending on factories and real estate rose 26.8 percent in the first 11 months from a year earlier, down from a 27.2 percent gain through October, the statistics bureau said today. Industrial output grew the least since 1999 in November, exports fell for the first time in seven years and inflation was the weakest in almost two years, reports showed in the past week.

Stimulus Package

China’s slowdown is deepening before a 4 trillion yuan ($584 billion) stimulus package announced last month kicks in. The central bank has reduced the one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting lending by banks.

The deepening global recession is taking a toll across Asia. South Korea’s growth will slow rapidly next year, the Ministry of Strategy and Finance said in Gwacheon today.

China is targeting an 8 percent economic expansion to generate jobs and avoid social instability, China Banking Regulatory Commission Chairman Liu Mingkang said in Beijing on Dec. 13.

Growth will probably be 5 percent or 6 percent next year, International Monetary Fund Managing Director Dominique Strauss- Kahn said in Madrid yesterday, Reuters reported. That would be down from 9 percent in the third quarter of this year and 11.9 percent in 2007.

Real-Estate Slowdown

Zhou said he couldn’t describe November’s data as “very bad,” citing retail sales, which grew 20.8 percent.

Spending growth for real-estate development cooled, rising 22.7 percent in the first 11 months from a year earlier after gaining 24.6 percent through October, today’s figures showed. The increase was 7.6 percent for November alone, the least in almost three years, estimated Xing Ziqiang, an economist at China International Capital Corp. in Beijing.

Exports declined 2.2 percent in November, the first fall in seven years as recessions in the U.S., Europe and Japan reduced demand. Imports plunged 17.9 percent, pushing the trade surplus to a record $40.09 billion.

China’s balance of payments will “determine the exchange rate,” Zhou said today.

The yuan’s biggest one-day drop against the dollar on Dec. 1 prompted speculation that the central bank would switch to a policy of depreciation to help exporters by keeping down prices in overseas markets.

Weaker Export Demand

“As demand from the U.S. and Europe weakens, a price cut doesn’t do much to help,” Zhou added. “Some factories may think they will be able to sell more if they cut prices, but some don’t. We have a controlled, floatable system. We intervene, but market forces play a bigger role.”

The currency has climbed 21 percent against the dollar since a fixed-exchange rate ended in 2005. Gains have stalled since mid-July.

China’s economic growth may slow to 5.5 percent in the first quarter and 4 percent in the second quarter, CFC Seymour Ltd. estimates. Goldman Sachs Group Inc. sees a rebound after a slide to 4.7 percent in the second quarter.

To contact the reporter on this story: Nipa Piboontanasawat at npiboontanas@bloomberg.net

Last Updated: December 16, 2008 00:53 EST