April 5 (Bloomberg) -- Asia's export-dependent economies are facing the ``worrying'' prospect of weaker growth in sales to China, which is also squeezing its neighbors out of key overseas markets, according to the World Bank.

``There has been a worrying slowdown in the pace of China's imports from East Asia in 2006,'' the Washington-based lender said today in a twice-yearly report on the economies east of the Indian subcontinent excluding Japan. ``If the slower pace of import growth in China persists through 2007, it could pose a concern for these other economies.''

China has been driving East Asia's expansion this decade as the world's fastest growing major economy sucks in supplies from neighbors to feed its export industry. That may now be under threat as China deepens local supply chains and produces more of the inputs its manufacturers need, the World Bank says.

``Companies in China are developing their capabilities at an astonishing rate,'' said John Ravenhill, a professor in international relations at the Australian National University in Canberra. ``The government is keen to promote its own national champions, whether it's automobiles or electronics.''

China's government wants to combine the nation's more than 100 automakers into a dozen groups under an industry policy adopted in 2004. Up to 26 percent of the cars made in China last year were designed locally or modified from imported models, according to the China Association of Automotive Manufacturers.

Imports of auto parts into China fell to a 13-month low of $593 million in February, according to customs bureau figures. Overseas purchases of mechanical and electrical products were the lowest in a year.

Slower Import Growth

China's imports rose 13.1 percent in February from a year earlier, the smallest gain in 19 months. That slowdown has been tough for other developing economies in Asia, which had benefited by selling parts, components and capital equipment to China, the World Bank said.

Growth in China's imports from developing Asian countries dropped to about 13 percent in the fourth quarter of last year from 24 percent in the first three months of 2006, according to today's report.

The weaker demand from China's $2.5 trillion economy for imports from other Asian nations has continued this year.

China's imports from the 10 members of the Association of Southeast Asian Nations fell 22 percent to $7.1 billion in February from $9.1 billion a year earlier, government data show.

Domestic Competition

``Competition is increasing in China's domestic market; in particular Chinese firms are deepening their supply chain within China itself,'' Milan Brahmbatt, an economist at the World Bank, said in Tokyo. ``That means an increase in competitive pressure for the rest of East Asia.''

Southeast Asian nations, as well as the more developed economies of South Korea, Taiwan and Hong Kong, are also finding it more difficult to compete against China's exports in their key U.S., European Union and Japanese markets.

China accounted for all of the increase in developing Asia's share of world exports to 17.9 percent in 2005 from 15.5 percent in 1995, according to World Bank estimates.

``World trade shares among the other main economies in the region either fell or increased only slightly in the last decade,'' the lender said.

China's exports to the U.S. were still growing at 25 percent to 30 percent year-on-year in late 2006 and early 2007, while shipments from South Korea, Taiwan and Malaysia had slowed to around 5 percent, the World Bank said.

U.S. Market

``Toward the end of last year, exports were slowing in much of the region but were actually accelerating in China,'' said Brahmbatt. ``China may also be gaining market share.''

Export growth from Indonesia, Thailand, Malaysia, Singapore and the Philippines is expected to ``flatten out'' at around 5 percent until mid-2008, Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore said in an report yesterday.

``The last 12 months haven't been particularly kind to exporters in the main Asean countries,'' said Prior-Wandesforde. ``The recovery this year looks likely to be tentative.''

China's shipments, by contrast, are expected by the World Bank to increase by about 19 percent this year.

Southeast Asia was ``crowded out by China of considerable market space in the U.S., the EU and Japan in the decade past,'' the Jakarta-based Asean secretariat said in December. ``Asean's export market shares would likely have been maintained or have grown faster with a less dynamic export surge from China.''

China's economy is expected to grow 9.6 percent this year, slower than the 10.7 percent reported in 2006, according to today's World Bank report. Growth in East Asia as a whole is forecast to moderate to 7.3 percent in 2007 from 8.1 percent.

``In China, we expect it will sustain its high growth rates in the foreseeable future,'' Ifzal Ali, chief economist at the Asian Development Bank, said in an April 3 interview. ``At about 9 percent, China will continue to grow over the medium term.''

To contact the reporter on this story: Michael Dwyer in Singapore mdwyer5@bloomberg.net

Last Updated: April 5, 2007 01:31 EDT