• FILE - In this July 15, 2015 file photo, a maintenance worker rides a scooter past banners reading "Development" and "Prosperity" in English and Chinese on a street in central Beijing.  The world’s second largest economy is decelerating, and the prospect of its slowing growth is rattling financial markets around the world. But China also is shifting, from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (AP Photo/Mark Schiefelbein, File)

    FILE - In this July 15, 2015 file photo, a maintenance worker rides a scooter past banners reading "Development" and "Prosperity" in English and Chinese on a street in central Beijing. The world’s second largest economy is decelerating, and the ... prospect of its slowing growth is rattling financial markets around the world. But China also is shifting, from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (AP Photo/Mark Schiefelbein, File) (The Associated Press)

  • FILE - In this Tuesday, July 14, 2015 photo, people are reflected on a window as they walk past mannequins on display at a boutique in Beijing. The world’s second largest economy is decelerating, and the prospect of its slowing growth is rattling financial markets around the world. But China also is shifting _ from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (AP Photo/Andy Wong, File)

    FILE - In this Tuesday, July 14, 2015 photo, people are reflected on a window as they walk past mannequins on display at a boutique in Beijing. The world’s second largest economy is decelerating, and the prospect of its slowing growth is rattling ... financial markets around the world. But China also is shifting _ from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (AP Photo/Andy Wong, File) (The Associated Press)

  • In this Friday, Aug. 28, 2015 photo, an employee works in a textile factory in Huaibei in central China's Anhui province. The world’s second largest economy is decelerating, and the prospect of its slowing growth is rattling financial markets around the world. But China also is shifting _ from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (Chinatopix Via AP, File) CHINA OUT

    In this Friday, Aug. 28, 2015 photo, an employee works in a textile factory in Huaibei in central China's Anhui province. The world’s second largest economy is decelerating, and the prospect of its slowing growth is rattling financial markets around ... the world. But China also is shifting _ from a dependence on exports and investment in factories, infrastructure and housing to a reliance on consumer spending from the country’s emerging middle class. (Chinatopix Via AP, File) CHINA OUT (The Associated Press)

As growth slows, China's shifting economy mints some US corporate winners, others losers

Industrials Associated Press

China is losing its appetite for dump trucks, iron ore and construction cranes. But the Chinese still want to travel and give their kids a better education.

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Growth in the world's second-largest economy is decelerating and rattling financial markets around the world. Behind that slowdown is an evolutionary shift in China's economy — from a dependence on exports and investment in factories and housing — to a reliance on spending by its emerging middle class.

That transition, a gradual and perhaps painful one, will affect which U.S. companies stand to benefit and which will be squeezed as China's growth slides from the double-digit annual rates of the mid-2000s to 7 percent, 6 percent, maybe even less.

The shift is likely to pinch American manufacturers that prospered during China's investment boom — makers of heavy construction equipment and industrial machinery, for instance.

But the service sector — a broad category that includes things like restaurant meals, haircuts and hotel stays — remains "reasonably robust" and has been a dominant driver of China's growth since the first half of 2012, said economist Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics.

"Yes, China is slowing," said Jeremy Haft, an entrepreneur, consultant and author of the forthcoming book "Unmade in China: The Hidden Truth about China's Economic Miracle." ''But households have huge (savings). People need to keep eating, walking, powering their homes."

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Chinese consumers now have more discretionary income to spend on entertainment, education and travel after years of robust economic growth. That additional income has created a bright outlook for companies that serve them.

The Princeton Review, a Washington D.C., company that helps students prepare for standardized tests and college entrance exams, remains bullish on China. The company declines to provide specific sales numbers. But the number of Chinese students enrolling in U.S. colleges is growing by double digits every year.

"We do not see any slowdown in the future," said Steven Chou, international vice president at Princeton Review.

Also doing well are American companies that make things in China and export them back to the United States, where economic growth is solid.

Haft, for example, runs a company that exports U.S. cattle hides to China. Business is booming, he says, because the Chinese turn the hides into wallets and ship them back to the United States, where the economy and consumer demand are comparatively healthy.

Recent trade numbers highlight the changes: U.S. merchandise exports to China rose just 0.2 percent in the second quarter to $30.5 billion from a year earlier. By contrast, services exports, which include tourism and banking, surged nearly 14 percent to $11.97 billion.

Boeing Co., the biggest provider of commercial jets in China, forecasts demand for 6,330 new jetliners in that country by 2034, with a value of $950 billion. Most of those new planes will handle passenger growth. Company executives said in a recent podcast that they're seeing "tremendous" demand for international flights, and they also expect a surge in demand for cargo-carrying aircraft.

At General Motors, which sells more vehicles in China than any of its U.S.-based competitors, sales in July slipped 4 percent compared with a year ago. But the company's first-half sales in China rose 4.4 percent to a record 1.7 million vehicles, and the carmaker still forecasts single-digit growth for the rest of the year.

So far, the shift is hurting companies that have benefited from China's building boom. Construction equipment giant Caterpillar, for instance, said its Asia-Pacific region sales dropped 21 percent in the second quarter — a casualty of a slowing China.

China is facing a construction glut, which is leading to a deceleration in property investment that will likely bottom over the next few quarters, Lardy, the economist, said.

"Ninety percent of the population already has a house," he said. "They've got a lot of very under-utilized real estate."

Market-wide demand for medium- and heavy-duty trucks in China plunged 30 percent in the first half of the year. That's not good for a company like diesel engine maker Cummins Inc., which draws between 10 percent and 15 percent of its revenue from China.

But the company's results show that picking winners and losers of China's shift isn't as simple as identifying broad industries that are experiencing either growth or slowing demand. Cummins' second-quarter sales in China advanced 6 percent to $916 million, thanks in part to a government push for tighter emissions standards. Those standards are fueling demand for new engines and parts that help older ones cut pollutants.

China's slowdown is expected to contribute to a year-over-year decline in the total revenue for roughly 60 chip companies in the current quarter ending in September, predicted B Riley analyst Craig Ellis. It would be the first quarterly drop in three years.

But these companies are also somewhat insulated because they supply Chinese factories run by contractors hired by Apple and other device makers. Those factory orders are more heavily influenced by consumer demand for finished smartphones, tablets and other products in the United States, Europe, Japan and other markets.

"No chip company is going to be completely immune" to China's slowdown, Ellis said. "But it's also important to distinguish where the hardware is being built and where it's being consumed."

Tech companies still see China as an important end market. Apple reported that more than a quarter of its revenue for the three-month period that ended in June came from selling products like the iPhone to consumers and businesses in China, Hong Kong and Taiwan.

Responding to investor worries about Apple's reliance on the Chinese market, CEO Tim Cook declared late last month that the company's business was still growing in China, where new iPhone activations had "actually accelerated over the past few weeks."

In a conference call with analysts in late July, Cook called China a "fantastic geography."

"Nothing that's happened has changed our fundamental view that China will be Apple's largest market at some point in the future," he said.

China accounted for 46 percent of semiconductor maker Ceva Inc.'s revenue in the first half of this year, up from 40 percent in 2014. The company still views the country as a hotbed, particularly because the Chinese government is investing billions of dollars into building its own semiconductor industry.

Ceva licenses processors for communications, vision, audio and other uses to companies in China, providing them with technology they need to make chips for tablets, smartphones and other devices.

"I believe that the strategic merit behind China's investment in its own semiconductor industry over the next 10 years will outweigh any potential slowdown that other areas of China's economy are experiencing," spokesman Richard Kingston said.

Roughly 60 percent of companies that belong to the American Chamber of Commerce in China reported increased revenue in China last year, down from 71 percent in 2013 and 2012. Fewer businesses reported higher profit margins last year. And 31 percent said they had no plans to increase investment in China this year, the most since the recession year 2009.

"Our companies have seen their top-line revenue growth slow along with" the Chinese economy, said John Frisbie, president of the U.S.-China Business Council. "It's still pretty good. It's outpacing other emerging markets ... Most companies feel like China will continue to grow."

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Murphy reported from Indianapolis, Wiseman from Washington. AP Business Writers Michael Liedtke and Brandon Bailey in San Francisco, Tom Krisher in Detroit, Barbara Ortutay in New York and Joe McDonald in Beijing contributed to this report.