China's booming economy weakening

BEIJING — Changshu Zhongjiang Import-Export Co., a clothing exporter in Suzhou, west of Shanghai, is accustomed to double-digit annual revenue growth. This year, with its key U.S. export market limping, sales have fallen 10 percent.

Changshu has avoided layoffs, but profits will be down as much as 85 percent from their 2005 peak, said Xue Jianfang, the company's vice president.

"We are not going to switch to domestic sales, because the domestic market is even worse," Xue said. "There are still some profits in this industry, but they are squeezed."

China's booming economy, a bright spot amid global gloom, is weakening in areas ranging from clothing exports to auto sales to manufacturing. Communist leaders who have spent a year fighting politically dangerous inflation are scrambling to change course and avert job losses by revving up struggling industries.

"Growth concerns have definitely become more important," said Grace Ng, a JPMorgan Chase & Co. economist. "I don't think they have come to the definite conclusion that we are having a sharp slowdown in growth, but they are clearly cautious. They do not want to reignite inflation pressure."

Companies are suffering a triple blow from record-high costs for energy and raw materials, slowing foreign demand and a rise in China's currency, the yuan, which makes their goods more expensive for American consumers.

A slowdown could have a global impact if China buys less factory equipment from the United States and Europe or oil and raw materials from developing countries. It would set back hopes that as U.S. demand falters, China would fill the gap in global growth.

Analysts expect economic growth to fall as low as 9 percent this year. That's well ahead of other major countries but a sharp decline from 2007's 11.4 percent. That worries Chinese leaders, who need to create jobs and satisfy urban workers who have come to expect steadily rising living standards.

Premier Wen Jiabao and other top economic officials could be politically damaged if they fail to cope with the problem.

"I think there is a bit of gridlock and not a lot of consensus about what to do," said William Hess, chief China analyst for the consulting firm Global Insight. "For some senior leaders who have come out and taken personal responsibility for the issues, they face some career pressures."

Textile exports fell 4.2 percent in June from the same month last year, a serious blow to an industry that employs millions of people. Overall export growth in June was 18.2 percent, down from May's 28 percent rate.

Two weeks ago, the Communist Party's ruling Politburo issued an economic plan that switched its stance from just taming prices to a dual mission of "ensuring stable and fast growth and preventing inflation."

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