Slowing Chinese economy poses challenges for U.S.

To go with "China-economy-growth,ANALYSIS" by Kelly Olsen This picture taken on January 10, 2013 shows laborers working in a clothing factory in Huaibei, central China's Anhui province. China's economy is poised finally to end a long downward trend in 2013, economists polled by AFP say, as the new communist leadership vows to retool the nation's investment-led development model and promote a "happy life" for all. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images) STR

(MoneyWatch) China's economy is showing further signs of stagnation that would have a big impact on America's long-stalled economic recovery.

A report released today showed the Purchasing Managers Index fell to a two-month low of 50.5 in April from 51.6 in March. Analysts had expected only a slight decline. A reading above 50 indicates expanding activity and one below that signals contraction. The report, from HSBC, highlighted an ongoing weakness in exports and jobs.

"New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak," said HSBC economist Qu Hongbin in a statement. "Weaker overall demand has also started to weigh on employment in the manufacturing sector."

However, analysts at Capital Economics disagreed about what this meant for employment. In a note to investors they wrote, "China once again disappointed expectations with today's release of a downbeat April flash PMI. Nonetheless, with the labor market still looking healthy, we think policymakers will remain focused on controlling credit rather than adding stimulus."

This is just the latest troublesome news for the world's second-largest economy. It comes just a week after China announced its first-quarter growth rate had slowed significantly to 7.7 percent on an annual basis.

Despite this slowing China's leaders appear to have little interest in the kind of stimulus spending program put in place after the financial crisis of 2008.

Last week newly installed Premier Li Keqiang indicated that while government approval for some infrastructure projects would speed up, he did not think the time was right for increasing credit. Zhou Xiaochuan, head of the nation's central bank, echoed that, saying China needed to "sacrifice" fast growth for long-term economic reform.

Li has made it clear he wishes to move China away from the huge growth of the last decade -- fueled by easy credit, government spending and an overheated real estate market -- and toward a mass-consumer society. This will mean an economy based less on heavy industry, real estate, manufacturing and export capacity and more resembling the U.S. mass consumer society, which relies more on the services sector.

The government has acknowledged this is a long-term project. If it succeeds it could be a boon to the U.S., with more customers for its products and services. In the short term, however, it could mean just the opposite. Many American companies are counting on the growing Chinese market to fuel their profits. Also, Chinese citizens are currently significant players in the U.S. real estate market -- something that could change if they do not have access to as much credit.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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