China's communist leaders have grown so anxious about the impact of the global downturn on the living standards that their citizens have come to expect, they have concluded an annual economic conference with a pledge to lower taxes and increase public spending.

“At present,” they said, in a startlingly frank statement after the meeting, “China's economic operation is facing great difficulties.”

The world's fourth-biggest economy has been shocked by trade figures showing exports declining 2.2 per cent — the first fall since June 2001 and the largest drop since April 1999.

Imports suffered an even greater collapse, plunging by 17.9 per cent in the steepest drop since bankers began to keep monthly records in 1993.

The falls alarmed economists, who had expected exports to rise by 15 per cent and imports to be 12 per cent up from a year ago.

Gene Ma, of the China Economic Monitor consultancy in Beijing, said: “First, global demand for Chinese products is vanishing. Secondly, the credit freeze in importing countries has made it hard for Chinese exporters to sell abroad.”

Nevetheless, the trade surplus soared to a record high of $40.1 billion, (£27 billion), eclipsing the previous record of $35.2 billion set the month before.

Plunging prices for oil and other commodities reduced China's import bill, but the declines also reflected spreading weakness in domestic demand as businesses and consumers tighten their purse strings. Some analysts said that the falls could continue until June.

Speculation has emerged that China might consider engineering a drop in the value of the yuan to give its flagging exporters a competitive edge in world markets. However, Jing Ulrich, head of China equities for JPMorgan, said that any sizeable devaluation was unlikely because it could trigger a protectionist response from trading partners:

“We believe the authorities are more likely to support the country's export sector by raising VAT rebates and guiding the export sector to move up the value chain.”

There was other grim news. After starting the year with pledges to fight inflation as the economy's No 1 enemy, China ends it struggling to stave off deflation. Figures from the National Bureau of Statistics showed that wholesale price inflation collapsed in November, far below economists' expectations and reflecting disappearing business and consumer demand and raising the spectre of deflation infecting the economy. It was the third consecutive monthly fall and was steeply down from the reading of 6.6 per cent in the year to October.

Isaac Meng, an economist with BNP Paribas in Beijing, said that the drop in factory-gate inflation, which peaked at 10.1 per cent in August, was hardly surprising, given the drop in raw material costs, but this made the fall no less alarming. “The situation is quite severe. We are slipping into a deflationary recession risk,” he said.

China has cut interest rates several times this year, including a 1.08 percentage points reduction late last month - four times its usual margin. In addition, the Government has devised a four trillion yuan (£400 billion) stimulus plan to boost domestic demand. But there are now fears that these moves may prove to be too little, too late.

Consumer inflation figures for the past month, which are due to be published today, are likely to underscore the dramatic erosion of price pressures as energy and commodity costs slide and domestic demand weakens.

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