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Windfalls, lost business, uncertainty - US small businesses feel impact from China's economy

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NEW YORK — China's economic problems have been a windfall for some U.S. small businesses — and pose a threat to others.

A nearly 40 percent plunge in the Shanghai stock market since mid-June, a response to the country's weakening economy, has sent Chinese investors looking for safer investments. Some are focusing on U.S. real estate, including the condos Peggy Fucci's real estate brokerage sells in Miami. She's sold six condos to Chinese buyers in the past month, twice what she's typically sold in that amount of time.

"It's the insecurity of continuing to lose your (stock market) investment," says Fucci, CEO of OneWorld Properties.

Chinese buyers, who pay an average $1.2 million for the condos in a downtown Miami development where she's sold some homes, want them as an investment rather than a place to live, she says. Fucci is heading to China this weekend on a sales trip, optimistic that she'll find more buyers.

Brokers in other cities where high-end real estate is sold also report more interest from Chinese buyers, especially in the last month. But U.S. small businesses overall may feel little impact from the weakness in China's economy, says Ravi Madhavan, a professor at the University of Pittsburgh's Katz Graduate School of Business who specializes in international business. Unlike big industrial companies, small businesses tend to import from China rather than export, so most are not likely to see their business affected, Madhavan says. Some may, however, see some better prices for the Chinese goods they buy following the devaluation of the country's currency, the yuan, last month. But others may see the prices they pay increase because labor costs are rising in China. The Chinese government wants to keep economic growth this year close to 7 percent. That is down slightly from the past few years, but half the 14.2 percent in 2007.

A weaker economy has already hurt some U.S. companies. Sales of Harley-Davidson motorcycles are plunging at Motor Export Experts.

Owner Paul Krawczyk has typically sold 45 motorcycles a year to Chinese buyers with plenty of cash to spend on luxuries like Harleys. But in the past quarter, with the Chinese economy slowing and the country's stock market plunging, he's sold three.

PHOTO: Peggy Fucci, CEO of OneWorld Properties, holds brochures written in Chinese for the Paramount Miami Worldcenter, in Fort Lauderdale, Fla. A nearly 40 percent plunge in the Shanghai stock market since mid-June has sent Chinese investors looking for safer investments. Some are focusing on U.S. real estate, including the condos Fucci’s real estate brokerage sells in Miami. She’s sold six condos to Chinese buyers in the past month, twice the number she’s typically sold. (AP Photo/Wilfredo Lee)
Peggy Fucci, CEO of OneWorld Properties, holds brochures written in Chinese for the Paramount Miami Worldcenter, in Fort Lauderdale, Fla. A nearly 40 percent plunge in the Shanghai stock market since mid-June has sent Chinese investors looking for safer investments. Some are focusing on U.S. real estate, including the condos Fucci’s real estate brokerage sells in Miami. She’s sold six condos to Chinese buyers in the past month, twice the number she’s typically sold. (AP Photo/Wilfredo Lee)

"Everything's pretty much come to a standstill," says Krawczyk, whose business is located in Ormond Beach, Florida.

Krawczyk has also lost business in Australia and New Zealand, countries that export natural resources like coal to China and are experiencing slower demand. He's trying to replace the lost business by focusing more on the U.S. market.

Other small businesses are waiting to see if they'll be affected.

Jupiter Aluminum Corp., which sells aluminum for building products and other uses, is concerned that China will increase its exports to the U.S. because it is producing more of the metal than its slowing economy needs, says Paul-Henri Chevalier, president of the Hammond, Indiana company. Chinese companies could sell aluminum at lower prices than U.S. producers whose expenses are higher due to labor and environmental regulations, Chevalier says.

"It may be the only way the Chinese have to get rid of their metal," he says.

At Scrubblade, which imports windshield wiper blades from China, owner Billy Westbrook wonders how much his costs will rise. The Temecula, California, company has contracts that should keep his expenses stable for the next six months. But the prices he pays his manufacturer have gone up more than 5 percent over the last eight months along with factory workers' wages. And factory owners are under pressure to keep raising wages — more than 200 strikes have been reported this year in the southern province of Guangdong, the heartland of China's export industry. Westbrook is expecting his manufacturer to start charging more.

"You have to have that padded into your costs," Westbrook says.

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