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TheStreet Open House

Reality Check in China as the Economy Slows

NEW YORK ( TheStreet) -- To evaluate an expected slowdown in China's economic growth on the stock market this year, put the calculator aside. Look harder at what's really going on.

The country forecasts economic growth of 7.5% in 2012, slower than last year's 9.2%. China's economy has grown 9% to 10% a year over the past decade, so such a slowdown has alarmed investors.

Meanwhile, the Purchasing Managers Index (PMI) is expected to have fallen in May from April to a score just above 50. A number below 50 would mean China's manufacturing industry, the cornerstone of its economy, shrank.

Close the ledger and go out into the street. Urban Chinese people worried about their economy usually bellyache about higher prices for seafood dinners or newly built condos. Since income is also rising, businesses that sell to the Chinese needn't worry about a sudden customer exodus. Stimulating consumption is a high priority for China through 2015.

On the manufacturing front, factories are still opening in China to make laptop computers or automobiles, despite a dent in exports from poor demand in Europe and the U.S. Some manufacturers have picked Southeast Asia to save on labor, but others have blazed deeper into China, expanding from their traditional bases in the Pearl River Delta to places such as Chongqing and Wuhan.

The CFO of Taiwan Semiconductor Manufacturing Co. told me last week that chip revenues from China should grow by about 60% this year. Mobile phone makers in China want the wafers to feed a steady domestic demand (never mind the economically ill West) for electronics. Share prices are up 5.9% since last year. An accident that the company has 389,000 retail investors?

The official line: China wants slower growth to control prices that have challenged exports and put apartments out of reach of common buyers. It also wants to narrow a wealth gap and raise mass living standards to promote social stability -- different from stoking quick investment that jacks up GDP figures but doesn't always trickle down. Communist leaders have eased monetary policy to make some of that happen.

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