With Chinese President Hu Jintao set to be a focus of international hopes at the G20 meeting of world leaders, Beijing gave its first clear signal that is ready to help the International Monetary Fund to help countries hit by the global credit crisis.

But, sticking to is traditionally cautious approach, policy makers made clear that China still sees shoring up its own flagging economy as its biggest contribution to easing the international crisis.

President Hu is likely to come under pressure to use part of China’s 2 trillion US dollar reserves – the biggest in the world – to contribute to a global bailout fund. This will place him on the horns of a dilemma: keen to show Beijing as a responsible world citizen without taking a step that could imperil its own economic recovery plans.

Yi Gang, deputy governor of the central bank, said: “Firstly, we must do our own job well. Maintaining a stable economy and stable and financial and capital markets is the biggest contribution China can make.”

Latest figures have underscored the growing challenge that Beijing faces. Capital spending was lower than expected in October, rising 27.2 per cent in the first 10 months of the year, down from 27.6 pe rcent in the period to September.

That figure, coming a day after industrial output slumped to its slowest in seven years, growing just 8.2 per cent in October from a year earlier, highlighted the sharp slowdown that China is seeing. Import growth has slowed, sales of retail goods has deteriorated and China is now warning of a threat of deflation just a year after it launched a battle to curb soaring inflation.

The main challenge now facing Beijing is to prevent the world’s fourth-largest economy from slowing too abruptly.

Mu Hong, vice chairman of the powerful National Development and Reform Commission, said the weakening trend had become more pronounced – particularly since the end of September. “You’ve just mentioned that many people are worried about the Chinese economy. I’m also worried about it,” he said.

The weakness reflected the impact of the global crisis but was also a legacy of tighter policies in force in the first half of the year. He said: “Given the current harsh domestic and overseas situation, whether we can prevent too sharp a slowdown and too sharp a swing will be a major challenge. The global financial crisis is a new challenge to us – a severe challenge. We should never underestimate the severity of the impact.”

A growing number of economists now expect that Gross Domestic Product in the fourth quarter of the year will expand much more slowly than in the third quarter – when it was up 9.0 per cent from a year earlier and a sharp deceleration.

Premier Wen Jiabao has taken the unusual step for China’s usually tight-lipped leaders of warning several times in the past few month about the slowdown. State media today quoted him as saying the situation was “worse than expected” – among his strongest remarks so far.

Writing in a Communist Party journal published last weekend, he said: “We must be aware that this year is the worst in recent times for our economic development.”

But China is also clearly aware that it may have to play some role this weekend in Washington, however limited.

The central bank’s Mr Yi said: “We will actively participate in rescue activities for this international financial crisis. We can act in many ways – bilaterally, for example, through currency swaps, and also multilaterally, for example by participating in activities on the platform of the IMF.”

If China surprises observers by coming up with hard cash, it will certainly expect more voting rights in the IMF in return.

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