Part 2: Implications of China’s Declining Manufacturing

Published on Author bloomer

Chinese laborer assembles industrial washing machine

Low manufacturing index ratings not only have adverse effects on jobs and export orders, but also on the non-manufacturing sector’s indices and investment products. A separate report released today showed deterioration, with the Purchasing Manufacturer’s Index (PMI) falling from 54.6 in December to 53.4 in January – or 1.2 percentage points. Also, the benchmark Shanghai Composite Index fell 0.8 percent on January 30th, resulting in the worst start to a year since 2010; which is believed to have occurred because of concerns that “the economy is slowing as the US Federal Reserve cuts stimulus.” This survey suggests that manufacturing jobs are decreasing at an increasing rate, with an unemployment gauge increasing to 48.2; the lowest since last February. It is possible that this pattern is cyclical – a natural backlash of increased holiday spending. What goes up must come down, right?

In terms of investment products, China Credit Trust Co. agreed “to repay bailed-out trust holders in a high-yield product whose threatened failure spurred concern that financial stresses and defaults will mount in the nations $1.7 trillion trust industry.” Additionally, Tianjin FAW Xiali Automobile Co. reported last month a net loss of between 430 million yuan and 530 million (or $71 million to $88 million USD), citing declining production and sales as the chief source for the losses. Is China’s economy slowing down permanently or is this a product of temporary market conditions? Only time can tell.

One Response to Part 2: Implications of China’s Declining Manufacturing

  1. We need to divide this into a cyclical component and a structural one. For the cyclical component, what share of manufacturing is for exports? My hunch is that has been falling for some time, thanks to domestic income growth that has shifted the relative weight of demand away from the US market. But if exports are falling, is this a US story or one of slower growth elsewhere, e.g. the EU?

    Over the long haul, however, productivity increases in manufacturing outpace those in the economy as a whole. What does that imply in the long run about the number of jobs in manufacturing? [How does this logic compare with our description of trends in agriculture? What has happened to manufacturing in the US, the EU and Japan?]