‘It’s no good for China’s growth’

updated 12:29 p.m. ET Jan. 23, 2008

BEIJING - Oyimay Sofa Co. is already feeling the pain of a looming U.S. economic slump.

Orders from skittish American retailers, who buy nearly two-thirds of Oyimay's output, are down 10 percent this month from the same time last year, said general manager Zhou Feng. He said the 1,000-employee company in China's export-driven southeast is scrambling to recover by switching to more appealing, profitable models but expects to see earnings slashed this year.

"We have felt the pinch of the U.S. economy," Zhou said.

From steel mills to travel agents, Chinese companies are bracing for tougher times as a U.S. slump cuts into sales to the all-important American markets, likely reducing China's own booming growth.

In Asia's other developing giant, India, the export-driven garment industry could suffer. But lower Indian reliance on foreign markets could limit the impact of a possible U.S. recession.

Curbing China's growth
Chinese companies are expected to respond to slower U.S. demand by trying to boost sales to Europe and domestic markets, while trade with other Asian economies could cushion the blow.

Economists have lowered growth forecasts for China due to the U.S. credit crisis. A drop of 1 percentage point in U.S. growth would shave 1.3 percentage points from China's growth rate, Citigroup says. Forecasts for 2008 growth now range from Standard Chartered's 9.5 percent to Citigroup's more optimistic 11 percent.

Lower export growth would ripple through the economy, hurting consumer spending and demand for steel and imports, which jumped 21 percent last year to a total of $791 billion. That could reduce China's potential to take up the slack from the United States as an engine of global growth.

China has been trying to reduce its reliance on exports. But still, its sales to the United States _ its No. 2 foreign market after the 27-nation European Union — rose 14 percent last year to $232.7 billion, accounting for 21 percent of total exports.

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