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The Boston Globe

Business

Chinese economic slowdown felt in the Bay State

All eyes have focused on Europe lately as the financial crisis there threatens economic recoveries in Massachusetts and the nation. But problems in another of state’s key international markets is adding to the worries.

China, which accounted for nearly $1 of every $10 in exports by Massachusetts companies last year, is undergoing a sharp slowdown as global demand for its manufactured products slumps. As a result, Massachusetts-made products shipped to the country — many of which support China’s manufacturing sector — have also fallen sharply.

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In the first quarter, the state’s exports to China plunged about 19 percent from the same period in 2011, nearly equaling the decline during the recent recession, according to World Institute for Strategic Economic Research, a nonprofit research group in Leverett. Previously the state’s third-largest export market, China dropped to sixth in the first quarter.

“It’s not good news,” said Andre Mayer, head of economic research at Associated Industries of Massachusetts, a business trade group. “With Europe slowing down, you would hope China would keep going and maybe pick up some of the slack. But that doesn’t appear to be happening.”

The decline in exports to China is not enough to push the state into recession, economists said, but it nonetheless adds to a growing list of negatives weighing on the recovery.

Over the past decade, expanding trade with China was a consistent bright spot for the state, serving as a counterbalance that allowed many businesses to offset losses in other markets in difficult times.

Massachusetts companies sold more than $2 billion in merchandise to China last year, primarily sophisticated products such as semiconductors, pharmaceuticals, instruments, and advanced machinery.

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China last year accounted for about half the $1.4 billion in revenue of Skyworks Solutions Inc., a Woburn maker of semiconductors for mobile devices such as cellphones and tablet computers. But after several years of consistent growth, sales in China have been relatively flat recently, said Skyworks’ chief executive, David J. Aldrich, who declined to give specific figures.

A number of factors are causing China’s economy to cool, economists said, including the slowing European and US economies, which has hurt demand for Chinese-made goods. China’s economy depends heavily on exports.

China’s economic growth is projected by economists to decline this year to about 8 percent from more than 9 percent last year. Some analysts believe China’s growth rate could eventually fall to about 5 percent, a strong pace by the standards of developed nations, but still a dramatic downshift for what has been the engine of the global economy.

Cabot Corp., a Boston chemical maker, said business in China, which accounted for about 18 percent of Cabot’s $3.1 billion in revenue last year, has also slowed recently, though the company wouldn’t release financial figures.

“China is quite critical to us,” said Patrick Prevost, chief executive of Cabot, “There’s concern about a slowdown, yes.”

But Cabot, which employs 600 workers in China, is still plowing ahead with plans to build its fourth manufacturing facility there to produce carbon black, a material used in tires. “You have to invest in the long term, not the short term,” Prevost said.

Exports to China represent only half a percentage point of the state’s annual economic output of nearly $400 billion. But it’s the cumulative impact of the Chinese slowdown, European financial crisis, and weakening US recovery that economists fear — falling dominoes that could hobble the Massachusetts economy.

The US economy grew at only a 1.9 percent rate last quarter, according to federal government data, while the unemployment rate rose to 8.2 percent last month from 8.1 percent.

Massachusetts, which releases May figures next week, added 2,500 jobs in April as the state unemployment rate slipped to 6.3 percent.

“If there’s just a slowdown in China, it’s not going to send us into a recession,” said Alan Clayton-Matthews, an economist at Northeastern University. “The question is whether, at the same time, we also see a decrease in activity with Europe and a slowing US economy.”

Local executives said they are optimistic that China’s huge developing market will flourish in the long term, offering opportunities for ­Massachusetts firms and boosting the state economy as profits from exports stream back to corporate headquarters here.

But they acknowledge that, in the short run, the once red-hot Chinese economy is cooling — and along with it demand for their products.

Nypro Inc., a Clinton plastics maker with four plants and 9,000 workers in China, sells a wide variety of plastic products to electronic, cellphone, medical device, and other manufacturers that sell in China.

The privately held company, which employs about 1,000 people in Massachusetts, declined to disclose what share of its $1.2 billion in revenue comes from operations in China.

“If there’s a slowdown in China, it would be an issue to our customers because they would have problems with consumer demand there,” said Nypro spokesman Al Cotton. “I don’t know if it will be a huge problem, but any decrease in demand in China would be felt.”

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