The euro zone together with Britain absorbs 20 percent of China's exports. We expect that the growth rate of China's overall exports, calculated in the renminbi, will fall 2 percentage points, as a result of economic slowdowns in Europe and Britain.

Moreover, the European economic slowdown might spread to other countries, which in turn will export fewer goods to the euro zone. As a result, those countries also will have less demand for Chinese products. The direct and indirect impacts will lead to an export growth rate drop of 4 percentage points, which will drag down China's GDP growth by 0.7 of a percentage point.

Sluggish international demand and the investment slowdown caused by decreasing home prices are the reasons why the Chinese Government should adjust its fiscal and monetary policies. China might further loosen its stringent monetary policy.

The biggest victims of the growth slowdown of China's exports to Europe are the mainland's electric and textile industries, which are the two major exporters to Europe. In particular, electrical products, including home appliances, office stationery, and telecommunications equipment and spare parts accounted for more than one third of China's exports to Europe last year, while textiles and clothing accounted for 29 percent of the country's total exports to Europe. Obviously, these two industries will suffer the most from a European economic slowdown and the weakening euro.