Booming China Suddenly Worries That a Slowdown Is Taking Hold

By KEITH BRADSHER

Published: August 5, 2008
HONG KONG — Many Chinese have been expecting a post-Olympics economic slowdown, but it has already started and the Games have not even begun.

Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles.

The trends, which actually have little to do with the Olympics (the Games themselves, which open Friday, are small compared with the size of the economy), are being felt worldwide.

China’s slowing growth is one reason that gasoline prices have fallen in the United States, for example. Similarly, world prices for metals like copper, tin, zinc and aluminum have tumbled in the last several weeks, as voracious Chinese factories have closed, or cut back their consumption.

But while China’s difficulties may reduce inflationary pressures around the world, they threaten to slow further the already tenuous global economic growth.

“China has slowed down a lot already, but it’s going to slow down more,” said Hong Liang, the senior China economist at Goldman Sachs.

Economists expect growth to slip from its recent pace of 11 percent or more annually to as low as 9 or 9.5 percent over the coming year.

Most nations would envy that rate. But 9 percent growth will make it much harder to supply jobs to the millions of Chinese moving to cities from rural areas in search of work. And any slower growth could prove a shock to workers who have been receiving double-digit pay increases each year, as companies struggle to find enough labor to keep factories open.

How Chinese authorities manage a slower economy, and its effect on China’s 1.3 billion people, will be a test for the regime. It seems to be responding quickly.

A Politburo meeting on July 25 replaced the previous national economic goals, preventing overheating of the economy and controlling inflation, with new targets. As enunciated by President Hu Jintao in recent appearances, the objectives now are to seek fast and sustained economic growth while still keeping inflation under control.

“We must maintain steady, relatively fast development and control excessive price rises as the priority tasks of macro adjustment,” he said on Friday at a rare news conference.

Having put a series of brakes on the economy over the last five years to keep inflation under control, Chinese policy makers are now removing some to prevent growth from slowing too much.

For example, after letting China’s currency rise sharply against the dollar in the first half of this year, China’s central bank has actually pushed it down against the dollar in each of the last four trading days, including a decline of 0.13 percent on Monday. This is helping to preserve the competitiveness of Chinese exporters in foreign markets, although at the risk of angering the United States and other trading partners.

In the last several days, Chinese authorities have also raised export tax refunds for garment manufacturers — an industry previously slighted by regulators, who remain more interested in promoting higher-tech industries.

Policy makers have also reportedly moved to ease lending limits on banks.

Weak demand from the United States over the last year, and now from Europe as well, is part of China’s emerging problem. On Sunday evening, the port here was less full of containers than usual, part of a broader slowing of export growth.

This weakening of exports has been particularly true of light manufactured goods from southeastern China, one of the country’s two main export areas, along with the Yangtze River delta region around Shanghai.

At Union Bags, a luggage maker in Dongguan, about 40 miles up the Pearl River from Hong Kong, sales to the United States have dropped 20 percent in the last year.

“We have had to cut back on our own orders to our local suppliers of zippers, nylon and polyester,” said Jim Jiang, the company’s sales manager.

Demand is beginning to weaken for big-ticket purchases. J. D. Power and Associates just cut its forecast for car sales in China this year to 5.95 million — still up from 5.42 million last year, but much less of an increase than the company’s previous forecast of 6.2 million.

More serious for the broader Chinese economy are signs that the real estate market is weakening after years of climbing prices that had prompted warnings of a possible bubble. Here again, the biggest trouble seems to be in southern China.