'Make in China' slows in face of rising costs

Ray

The Chairman
Professional
Joined
Apr 17, 2009
Messages
43,132
Likes
23,834
'Make in China' slows in face of rising costs

(Reuters): China's factory activity sputtered in December, highlighting the challenges facing the country's manufacturers as they fight rising costs and softening demand in a cooling economy.

After a rough 2014, the world's second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults.

A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy.

China's official Purchasing Managers' Index (PMI) slipped to 50.1 in December from November's 50.3, a government study showed on Thursday, its lowest level of the year and clinging just above the 50-point level that separates growth from contraction on a monthly basis.

Analysts polled by Reuters had forecast a reading of 50.1.

"This indicates that industrial growth is still in a downward trend, but the pace (of declines) is slowing," Zhang Liqun, an economist at the Development Research Centre, said in a statement accompanying the report.

"The current economic situation is in the process of returning to stability from slowing down," Zhang said.

A similar private survey on Wednesday showed activity shrank for the first time in seven months in December. That survey focuses on smaller companies, which are facing greater strains, notably higher financing costs and problems getting loans.

The official survey looks more at larger, state-owned firms, which have been more resilient to the protracted downturn, partly due to generous government subsidies and better access to credit.

Many analysts expect economic growth in the fourth quarter to slow only marginally from 7.3 percent in the third quarter, though a raft of weak data suggest that may be too optimistic.

That means full-year growth will fall short of the government's 7.5 per cent target and mark the weakest expansion in 24 years.

Economists who advise the government have recommended that China lower its growth target to around seven per cent in 2015.

In a bid to spur growth and keep borrowing costs down, the central bank unexpectedly cut interest rates for the first time in more than two years on November 21. It has also injected more funds into the banking system in recent months and relaxed restrictions to persuade risk-averse banks to lend more.

In addition, the economic planing agency has been approving more infrastructure projects.

Some hopeful signs have emerged from recent data, though analysts say they may only partly offset the downdraft from the weak property market and its knock-on effect on other industries, which is weighing on demand for everything from furniture and glass to cement to steel.

Growth in China's services sector, which accounts for close to half of the economy, remains robust, though firms are still shedding jobs. The official non-manufacturing Purchasing Managers' Index, or PMI, rose to 54.1 in December from November's 53.9.

Authorities want services to overtake manufacturing as the bigger driver of activity in coming years.

Export demand may also be bottoming out, with a stronger U.S. economy helping to offset weakness in Europe and Japan.

The PMI for large manufactures was 54.6 last month, while business shrank for small-to medium-sized factories.
'Make in China' slows in face of rising costs
The US economy coming on even keen seems to be affecting China in a big way.

The Chinese Govt has to give out more doles to the industry to keep it above the water.

One wonders how much the Chinese Govt can dish out without affecting its other sectorial priorities.
 

ezsasa

Designated Cynic
Mod
Joined
Jul 12, 2014
Messages
31,717
Likes
146,990
Country flag
The current chinese slowdown is not necessarily the beginning of the end of chinese economic superiority. My guess this is a symbol of consolidation as they move from export oriented economy to consumption based economy. Some reports say China is planning to take on the role of world's investor in three years time.
 

Sambha ka Boss

Regular Member
Joined
Aug 25, 2014
Messages
701
Likes
375
The US economy coming on even keen seems to be affecting China in a big way.

The Chinese Govt has to give out more doles to the industry to keep it above the water.

One wonders how much the Chinese Govt can dish out without affecting its other sectorial priorities.
Their per capita income is rapidly rising and also the large part of population is getting old may be facing labor force crisis in the future, so very obvious China may lose its manufacturing edge very soon.
 

mattster

Respected Member
Senior Member
Joined
May 30, 2009
Messages
1,171
Likes
870
Country flag
I dont see how China can balance the environmental concerns and all the other long term issues with 7% growth rate.

The country is horribly polluted and all the manufacturing and construction is only making it worse.
It needs to get rid of all its coal-fired power plants. It will have to shutdown hundreds of manufacturing plants that pollute.
It needs to take care of millions of elderly residents.

All this stuff will make the cost of doing business more expensive and wages will go up....which is not a bad thing.
But how do you do all this and still maintain 7% growth rate. I just dont see it. I think the best you can hope for is 5%.
 

nrj

Ambassador
Joined
Nov 16, 2009
Messages
9,658
Likes
3,911
Country flag
China no longer wants to be cheap goods manufacturer for westerners. Rising labor costs is good indication for the process. They are moving up the value chain. So unfortunate if India takes its place for low cost manufacturing.


Sent from my iPhone using Tapatalk
 

karn

Senior Member
Joined
Apr 17, 2014
Messages
3,596
Likes
15,356
Country flag
I dont see how China can balance the environmental concerns and all the other long term issues with 7% growth rate.

The country is horribly polluted and all the manufacturing and construction is only making it worse.
It needs to get rid of all its coal-fired power plants. It will have to shutdown hundreds of manufacturing plants that pollute.
It needs to take care of millions of elderly residents.

All this stuff will make the cost of doing business more expensive and wages will go up....which is not a bad thing.
But how do you do all this and still maintain 7% growth rate. I just dont see it. I think the best you can hope for is 5%.
Any country that has not yet fully urbanised can easily have 8 % + growth . Buildings and roads are an easy way to boost GDP numbers .
 
Joined
Feb 16, 2009
Messages
29,797
Likes
48,276
Country flag
China no longer wants to be cheap goods manufacturer for westerners. Rising labor costs is good indication for the process. They are moving up the value chain. So unfortunate if India takes its place for low cost manufacturing.


Sent from my iPhone using Tapatalk
India does not have infrastructure or motivation to become a cheap manufacturer. Any low end manufacturing Done in india is for domestic consumption not export.
 

no smoking

Senior Member
Joined
Aug 14, 2009
Messages
5,000
Likes
2,302
Country flag
India does not have infrastructure or motivation to become a cheap manufacturer. Any low end manufacturing Done in india is for domestic consumption not export.
Oh, no, India does have the motivation to become a cheap manufacturer. India has a serious problem of creating jobs for her huge unskilled work forces. The only industry sections can provide this scale o employment are: LOW END MANUFACTURING!
 
Joined
Feb 16, 2009
Messages
29,797
Likes
48,276
Country flag
Oh, no, India does have the motivation to become a cheap manufacturer. India has a serious problem of creating jobs for her huge unskilled work forces. The only industry sections can provide this scale o employment are: LOW END MANUFACTURING!
True but India's own domestic consumption is large enough to absorb any and all low end manufacturing .China has the infrastructure to support it's own demand and exports to the world.
Unskilled labor is still in big demand in agriculture and construction.
 

no smoking

Senior Member
Joined
Aug 14, 2009
Messages
5,000
Likes
2,302
Country flag
True but India's own domestic consumption is large enough to absorb any and all low end manufacturing .China has the infrastructure to support it's own demand and exports to the world.
No, your own domestic consumption is enough to absorb your current scale of low end manufacturing, which employs less than 20m work force. Considering India has a population close to China, we can assume that India need to provide same amount of jobs to its work forces. Then you have to multiply this by 5 times will be the number of Chinese workers in the same industrial departments. With same amount of workers, it is guaranteed that the output of India will be the same. Since India people won't wear more cloths or shoes each year than Chinese. So, the consumption of India on these products would be as same as China. Then we can conclude: you need a world market to absorb the majority of any and all low end manufacturing.

Unskilled labor is still in big demand in agriculture and construction.
No, your agriculture and construction don't demand these unskilful workers. The only reason they accept these workers is they have no choice.
When these people have no better place to go, they have to stay with their land.
When your construction companies have no better candidates, they have to employ these people. This leads to a problem: the productivity of these 2 departments is damn low.
 

Compersion

Senior Member
Joined
May 6, 2013
Messages
2,258
Likes
923
Country flag
PRC can reduce their interest rates ...

but the bigger picture is how much integrated PRC will become with global standards and transparency in future.
 

Redhawk

Regular Member
Joined
Dec 11, 2014
Messages
578
Likes
263
The US economy coming on even keen seems to be affecting China in a big way.

The Chinese Govt has to give out more doles to the industry to keep it above the water.

One wonders how much the Chinese Govt can dish out without affecting its other sectorial priorities.
Good points, Ray. It is an "interesting" time for the PRC's economy.
 

Latest Replies

Global Defence

New threads

Articles

Top