The Future of Chinese Manufacturing

Economic data out this month is providing reassurance for those who trade with and source consumer products in China. New data from the National Bureau of Statistics shows industrial output up 6.3% during August from a year earlier, rising from 6% in July. The data suggests government spending and strong property sales are helping to stabilize the economy, in turn making it an attractive place for foreign moguls to do business.

The news came after a wobbly start to the year, after the government investment aimed to ‘jump start’ the economy seemed to be having limited effect. That it is now having a noticeable impact on key economic indicators demonstrates that policymakers’ efforts to reverse the slide in investment growth is succeeding.

There are certainly a number of issues currently facing the Chinese manufacturing industry. From a macroeconomic perspective, as China grows wealthier and wages rise, it simply becomes more expensive to manufacture there. For example, for textiles business for whom cost is the concern, emerging economies such as Vietnam and India are also attractive options for manufacturing. As China grows richer, however, so does its base of skilled technical workers, making it a more attractive place to manufacture advanced and innovative technology products.

Another issue, that gained traction in the US election, is the negative impact of excess capacities in Chinese industrial factories. Despite promising to curb excess capacity, the Chinese government continues to provide cash assistance and subsidies to steel-makers, coal miners and other factories. This has resulted in a concerning glut in the global market for industrial goods such as steel, aluminum and diesel, as well as tension amongst China and its trading partners.

At CPG, we assist those looking to make and buy consumer goods – all types of products from furniture to electronics, accessories to air coolers. We are finding that those working in this industry are both busy and optimistic about the future. China continues to hold the competitive advantage in manufacturing, especially in large quantities, and our clients have benefited this year from the drop in the yuan.

The new economic data out this month demonstrates to us that the current tax cuts and increased government spending are taking effect, marking a solid step towards greater economic stability. China will continue to be a dependable trading and manufacturing partner for the US, with technological advancements increasing the variety and quality of products available to source in China.

 

By Nathalie De Clercq