India and China can’t offset lost U.S. spending

"We need to turn around our North American business. There is no choice," GM President Fritz Henderson said in September, at the opening of a new factory in Pune, a growing Indian manufacturing hub outside Mumbai.

For Vodafone Group Plc, the world's biggest mobile phone service provider by sales, India and China are "absolutely vital," said company spokesman Simon Gordon. "That's where the growth is."

But over 70 percent of Vodafone's sales still come from Europe. In the first half of this fiscal year, India accounted for just 6 percent of the group's 19.9 billion pound in revenues and less than 1 percent of adjusted operating profits. Vodafone does not operate in China, though it owns a 3.21 percent stake in China Mobile.

During that period, the company posted a 35 percent fall in net profit, despite adding 10.5 million new customers in India and growing India revenues by 41 percent.

Now, the economies of India and China are themselves slowing. Their stock markets have plunged, businesses and households are finding it harder to access credit, and fears of job losses have shaken consumer confidence.

Lower export growth in China is spilling over into consumer spending, as workers fret about pay and job security.

Zhu, who works at an export company in Shanghai, has been trolling the Internet for shopping deals, because she is not getting a bonus this year.

"Companies that can't manage to sell their export items are selling online at very low prices," she said. "It doesn't mean I don't like shopping in stores, but I can't afford that right now."

Despite government efforts to spur domestic spending, many Chinese remain frugal, concerned about saving for health care and retirement.

"Consumer demand is not going to be the answer to disappearing exports," said Robert Lawrence Kuhn, chairman of Kuhn Global Capital LLC and a longtime adviser to the Chinese government. "China's domestic consumption is necessary but not sufficient to stabilize China, much less the world."

India relies less on exports. They account for about 20 percent of the Indian economy, versus 35 percent in China.

Still, the global financial crisis has hit the Indian stock market and sparked a nasty credit crunch. Many consumers are unable to get loan approvals or afford the high interest rates. That, plus lingering inflation, has hurt consumer confidence and crimped growth.

Gibson Vedamani, chief executive of the Retailers Association of India, says overall retail sales in India will likely grow 8 to 10 percent this year, down from about 30 percent last year.

Sales of basic items such as food and clothes, which account for most Indian spending, have held up far better than credit-driven purchases, such as homes and cars.

"We are not seeing a slowdown on basic products," said Kishore Biyani, chief executive of the Future Group, India's largest retailer, whose holdings include discounter Big Bazaar. He's still hiring and plans to expand total floor space from 11 million to 16 million square feet by June next year.

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Most Indians won't set foot in Biyani's sweeping 16 million square feet for years, however. The masses still struggle, parceling out their rupees at the hot, hectic mom-and-pop shops that dominate the landscape.

"We won't buy from the mall," said Suraj Buralkar, 21, who dropped out of school and started driving a taxi to help support his parents and three siblings. "The mall is too expensive for us."

Still, Buralkar, like many in this hopeful country, is on his way. Earning just 3,200 rupees ($67) a month and working overtime to satisfy his gnawing desire for stuff, he saved enough to pluck a pair of jeans, at 1,300-rupees ($27), or one-third of his monthly income, from one of India's teeming roadside bazaars.

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