Car sales and airline traffic slump in China

China is undergoing a slowdown in airline traffic and car sales as the financial slump slamming North America and Europe starts to pinch Asia's economic powerhouse.

That could spell trouble for Western-based companies of all kinds, particularly automakers such as General Motors Corp., which are counting on revenue from China and other emerging markets to offset weakening demand at home. Carlos Gomes, economist at Bank of Nova Scotia, cut his forecast for U. S. auto sales to 13.7 million vehicles this year and 13.5 million units next year, saying Americans have little room to spend on big-ticket items because they're already heavily indebted. The latest evidence that

China's transport boom is hitting a wall came yesterday when the International Air Transport Association released figures showing Asia Pacific carriers had a 3.1% year-over-year drop in passenger traffic in August after a 0.5% decline in July. International freight traffic among the region's cargo airlines, measured in freight tonne kilometres, fell 6.8%.

"The contrast between the first half of the year and the last two months is stark," said Giovanni Bisignani, IATA director general. "The slowdown has been so sudden that airlines can't adjust capacity quickly enough."

One reason for the decline in Chinese air passenger traffic is that the Chinese government restricted visas for visitors entering the country

during the Beijing Olympics, an IATA official said. He said international passenger traffic among Chinese-based carriers fell 22% during the month.

Analysts say the Games may also be responsible for a 6.2% drop in Chinese motor-vehicle sales in August, the first decline in more than two years. The theory is that buyers shied away from dealerships and stayed home to watch TV instead.

GM executives are still predicting annual auto sales growth in China this year of about 12%. They argue the slowdown, also a result of a government-mandated hike in gasoline prices, won't last.

Others counter that the weakness in August was not a one-month blip. On Monday, Toyota Motor Corp. said the overall market in China is not expanding as quickly as the company initially thought.

The Japanese carmaker, battling an unprecedented contraction in its domestic market, said it had started slowing production of its Camry sedans at a joint-venture plant in Guangzhou.

"The [Chinese] economy is definitely facing a slowdown," said Todd Lee, an analyst at Global Insight in Lexington, Ma., adding there has been wealth destruction in the stock and real estate markets.

"You can't count on China to be the engine of growth to help lead the global economy out of the current slowdown."

China's economic growth has in fact been declining for four straight quarters. Growth may slow further, to between 9% and 9.5%, as the U. S. financial crisis dampens consumer demand, Liu Mingkang, chairman of the Chinese Banking Regulatory Commission, said last week.

China's economy expanded 11.9% last year and accounted for 11% of the gross world product, according to the International Monetary Fund.

"The past five years we've been overheating," said Fan Gang, an advisor to China's central bank. He said he does not believe the country's economy, or the economy of any other emerging markets, will be enough to offset a U. S.-led recession.

"We are still a low-income country. The majority of people are still poor."