China's Premier says country's resources demand will stay strong

CANBERRA (Reuters) -

Australia's Prime Minister Kevin Rudd said China has assured him that demand for Australian resources will stay strong, shielding the commodities-dependent economy from the global financial crisis.

Mandarin-speaking Rudd said he telephoned Chinese Premier Wen Jiabao on Monday and was told commodity demand would hold up despite China's growth slipping from "11 and 12 percent down to 9 and 10 percent". "Part of the long-term strategy of this government, and the strategy for the period immediately ahead, is how to more deeply and broadly engage with the Chinese economy," Rudd told Australian media on Thursday.

Australia is pinning its hopes on China to ride out the current turmoil on international financial markets. The country's central bank slash interest rates by 1 percentage point this week to try and maintain economic growth and liquidity.

Shares in Australia's fourth largest iron ore producer, Mount Gibson Iron Ltd, dropped sharply on Thursday after the company said key Chinese customers had requested shipment delays due to stockpiles at Chinese ports and less steelmaking.

Markets saw the move as a sign of weakening Chinese demand for Australian commodities amid global market uncertainty.

China's economy may be critical to Rudd's fledgling centre-left government, elected only last year, with polls slipping and analysts warning that a severe downturn could see Rudd ousted after only one three-year term in 2010 elections.

The IMF's latest World Economic Outlook this week predicted strong Chinese and Asian demand for Australia's mineral and energy exports would help Canberra dodge any global recession, although growth would slip from 4.2 percent in 2007 to 2.5 percent in 2008 and 2.2 percent in 2009.

China vies with Japan as Australia's biggest trading partner, with two-way trade worth A$52 billion ($34 billion). Beijing now accounts for 14.2 percent of all Australian exports, mostly in iron ore, and economic ties are growing at 16.8 percent a year.

Australian Finance Minister Lindsay Tanner said Australia was well placed to lift exports to China beyond the mining boom as the two countries moved nearer to a free trade pact during the latest round of talks last week in a three-year negotiation.

"Because of our proximity to China and because of connections through things like mining and of course the imports we get from China we're well positioned to broaden that relationship into things like professional services and financial services," Tanner told Australian radio.