China to maintain strong despite US....

China to maintain strong growth despite US subprime woes - Goldman Sachs

BEIJING (XFN-ASIA) - A potential US slowdown is likely to reduce overheating pressure in China rather than have any significant negative impact on the Chinese economy, Goldman Sachs said. China's continued robust growth also proves that it can decouple from an external slowdown, the brokerage said in a note to clients. While US economic growth in the first half slowed to 1.5-1.8 pct, compared with 3.2-3.3 pct a year earlier, China's economy continued to power ahead, expanding 11.5 pct in the first six months of this year. In the US, significant downward pressure could be exerted on consumer spending because of the US subprime crisis, which has raised the risks of a sharper correction in its housing market, Goldman noted. This would affect China's exports, but as this sector is already showing signs of overheating, a slowdown in demand would help alleviate pressure, it said. ""A slowdown in external demand, led by a weakening US, would reduce the overheating pressures in China, and thereby reduce the risks of more aggressive policy tightening,"" the note said. Manufacturers of consumer-related products, such as textiles, apparel, footwear and consumer electronics are likely to be the most adversely affected, Goldman Sachs said. Slower export demand would also leave more room for China's domestic demand to grow, it added. ""A slowdown in the US and elsewhere would potentially help reduce inflationary pressures in China and encourage policymakers to place more emphasis on the need to preserve domestic demand,"" it said. Conversely, if softening of external demand remains muted, the need for China to rein in growth will persist, Goldman Sachs added. The brokerage has an above-consensus GDP growth forecast for China for this year at 12.3 pct. For 2008, Goldman Sachs sees China's economic growth at 10.9 pct. ""Unless the US economy dips into recession, China is likely to be able to maintain its growth rate at 10 pct or above,"" it said.

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