‘It’s no good for China’s growth’

'It's no good for China's growth'
"If there is no growth in such demand, or it slows, then we will see that goods produced in China can't be sold," said Merrill Lynch economist Ting Lu. "It's no good for China's growth."

Neighboring countries could feel the blow as Chinese factories making goods for export buy fewer components abroad. China is South Korea's No. 1 foreign market, ahead of the United States, and a key customer for other Asian economies that supply raw materials or feed a growing Chinese consumer market.

An export slowdown could worsen what Chinese planners worry is an excess of production capacity in industries including textiles and auto manufacturing. They have been trying to curb investment in industries where supplies of assets exceed demand, but spending on factories and other fixed assets has been rising at an annual rate of 25 percent.

"An export-led slowdown would reveal the overcapacity," Lehman Brothers economist Mingchun Sun said in a report this week. He said that could leave companies with a backlog of goods and trigger a price-cutting war, "both of which would undermine firms' profitability and ability to repay bank loans."

China's boom and rising demand made it the second-biggest contributor to world growth last year after the United States, according to the International Monetary Fund. But analysts say China alone cannot replace the giant U.S. economy as the global engine.

"China, to some extent, can be a growth driver, but it cannot fill all the gap," Lu said.

In India, the economic impact of the U.S. slowdown is expected to be more muted due to the country's limited reliance on international markets.

Indian exports to the United States in the year ending last March were just $18.9 billion, or 15 percent of total foreign sales, according to government data.

"A U.S. slowdown won't hit us in a big way," said D.K. Joshi, principal economist for ratings agency CRISIL. "Our big advantage is that we have domestic purchasing power that provides a buffer against global turmoil."

Nevertheless, growing Indian export industries, including clothing, could be hurt.

Rajendra Hinduja, financial director of Gokaldas Exports, a major garment exporter, said foreign retailers report that sales of its clothes are down 4 percent to 5 percent.

‘U.S. recession’ impact
"The U.S. and EU are our main markets, so yes, a slowdown in the U.S. markets will definitely affect us," Hinduja said. "It's a little early to talk about it, but if retail is affected it will affect jobs and there will be layoffs."

Chinese companies are responding by trying to develop new products and to promote sales in Europe and other non-U.S. markets.

Exporters already are struggling with the rise of China's currency, the yuan, which has increased by 14 percent against the falling U.S. dollar since 2005. That has cut profits for producers of low-cost furniture, toys and other goods who employ millions of workers.

The Meisida Electronic Toys Co., in Jinjiang, a city in Fujian province in the southeast's export belt, is hearing complaints from U.S. customers about rising prices, said the company's foreign sales manager, Chen Junling. She said the company has 1,200 employees and exported 90 percent of its output last year.

"I have no idea exactly how much the U.S. recession will affect our business, but we may see purchasing volumes decline," Chen said. "We will develop new products to meet customer demand, but we are not going to cut the price."

In Beijing, China Odyssey Tours has seen a "very obvious" decline in American customers, said a marketing department employee who would give only her surname, Li. Odyssey is trying to attract more non-U.S. travelers and plans to increase promotions aimed at Americans, Li said.

"We don't plan to reduce the price, but we want to attract more rich Americans," she said. "After all, there are still many rich Americans."

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