By Ambrose Evans-Pritchard

LONDON, England - February 6, 2012 - Shanghai shipping volumes contracted sharply in January as Europe's debt crisis curbed demand for Asian goods, stoking fresh doubts about the strength of the Chinese economy.

The shipping specialist Lloyd's List said container traffic through the Port of Shanghai - the world's largest - fell by 100,000 boxes in January from a year earlier, or 4%. Volumes fell by over one million tons.

The figures may have been distorted by China's Lunar Year but there has been a relentless slide in the Shanghai transport data for several months.

"China's shipping markets face grievous challenges," said the Shanghai International Shipping Institute. It acknowledged that the industry is in the grip of a downturn and likely to face a "worsening situation" in early 2012.

The biggest falls in container volumes have been on the Asia-Europe route.

The data came as the International Monetary Fund warned that China is vulnerable to the "clear and present danger emanating from Europe" and could see growth halve to roughly 4% if the crisis escalates.

"China's growth rate would drop abruptly if the euro area experiences a sharp (Depr)ession. In the unfortunate event such a downside scenario becomes reality, China should respond with a significant fiscal package," said the IMF.

A fall in global growth by 1.75 percentage points would cut Chinese growth by more than twice as much unless Beijing took active steps to counter the shock, showing how distorted China's economic model has become.

"China would be highly exposed through trade linkages," the IMF said. The report is a none-too-subtle reminder that China has a huge stake in Europe's stability and should be ready to stump up more money for an IMF-led rescue.