Slowing Economy Gives Way to Global Role Reversals

Exports in China -- the darling of the 21st-century economy -- are also being hammered by slackening demand caused by the global slowdown and rising labor and material costs. Chen Gong, who runs a factory that makes plastic cleaning devices in Ningbo, a manufacturing city near Shanghai in the Yangtze River delta, has seen profits slip partly from the yuan's controlled but steady rise against the dollar. It has slashed profit margins for many mid-size manufacturers from 15 to 3 percent. Many factories in nearby Guangdong province have closed their doors, and thousands of workers have lost their jobs.

"We'll just see who can survive this," Chen said. Experts predict as many as one-third of export manufacturers will close in the next three years.

Chinese exports to the United States have been flat this year and will likely experience a rare, overall decline by year-end, said Arthur Kroeber, managing director at Dragonomics, a research firm in Beijing. Yet experts said that might be exactly what China needs. A global slowdown -- if tempered -- could help China stage a soft landing for its breakneck economic growth.

"In some ways, this is not only welcome but desired by the Chinese," said Vikram Nehru, the World Bank's chief economist for East Asia and the Pacific.

Yet in Europe and Japan, the situation is decidedly more gloomy. In Japan, a new government forecast shows slowing economic growth and rising inflation in the coming year. The Bank of Japan on Tuesday lowered its growth forecast to 1.2 percent through March -- the lowest since 2002. It also forecast an increase in core inflation to 1.8 percent, the highest since 1997. Toyota Motor is cutting its global sales target for 2008 by 3.6 percent, to about 9.5 million vehicles, to reflect a sharp slowdown in the United States, Japanese public broadcaster NHK said yesterday.

In Europe, which analysts once hoped would be a pillar of economic strength in the event of a U.S. recession, analysts are now warning of possible recession. The weakening dollar has made German chemicals and cars exceedingly expensive overseas -- particularly in the United States -- stinging the manufacturing industry in the euro zone's largest economy. Spain, Ireland and Britain are mired in painful housing slumps with their financial institutions squeezed by the U.S.-sparked global credit crunch.

British consumers, in particular, are tightening their belts. Marks & Spencer, a bellwether of Britain's retail sector, has reported declining sales in recent weeks. The latest survey by the British Chambers of Commerce showed confidence among businesses at its lowest since the most recent British recession in the early 1990s.

"The credit crisis, runaway inflation, mind-blowing energy crisis, falling confidence, housing prices -- they have created a perfect storm," said Henk Potts, equity strategist at Barclays Wealth. "It's currently a market for the brave."

Drew reported from Beijing. Correspondents Peter Finn in Moscow, Blaine Harden in Taipei, Emily Wax in New Dehli, Stephanie McCrummen in Nairobi, special correspondent Karla Adam in London and researcher Lui Songjie contributed to this report.