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Is China’s economy a bit of a mixed bag?

By Jeff Berman, Group News Editor
May 28, 2013

As the global economic picture remains, um, murky, a recent report in the Wall Street Journal observed that declining manufacturing output in China, the world’s second largest economy after the United States, is cause for concern.

The WSJ reported that the preliminary HSBC China Manufacturing Purchasing Manager’s Index dropped to 49.6 in May, down from 50.4 in April. Like the Institute for Supply Management’s monthly Manufacturing Report on Business, a reading below 50 represents contraction, whereas a reading of 50 or higher represents growth is occurring.

Chin’s manufacturing decline is the latest wrinkle in a year that has not matched up with expectations. The article explained that at the outset of 2013, economists expected 2013 to show stronger growth compared to 2012, noting that hopes are now fading, due to a “global economic environment still struggling with Europe’s lingering debt crisis and austerity measures and sluggish growth in the U.S.”

What’s more, it said that the Chinese economy is struggling under the combined weight of weak global demand and decelerating consumption at home, with a massive spending spree in lending at the beginning of the year adding to ongoing concerns, like economic debt as opposed to stimulating the economy.

Putting this on clearer display, the WSJ said that Q1 economic growth in China fell to 7.7 percent from 7.9 percent in Q4. Even though that figure is trending down, it is well above the United States’ current pace, which has been heavily impacted by federal budget cuts i.e. sequestration.

Even with the warning signs coming out of China, one spot of growth that still exists there is export growth, which the WSJ said was up 14.7 percent annually in April. This export growth has been reflected to a degree in West Coast port import data, but it is fair to say we will get a truer picture in the next two-to-three months with Peak Season (if there is one) now on the horizon.

While it seems China has joined the party when it comes to economic issues and concerns, it is not to suggest that things are going truly south on the economic front there anytime too soon.

In a recent interview with LM, Josh Green, CEO of Panjiva, an online search engine with detailed information on global suppliers and manufacturers, said that China’s economy—at a time when the global economic outlook is muted to a degree—is a bit of a mixed bag.

“This has to do with the indicators we are seeing,” he said. “It does not feel like we are facing imminent collapse or anything like that, and we don’t see significant downside risks in the market. But we don’t think global trade is taking off any time soon either and modest growth is what it feels like in terms of the trajectory we are on. China has its hands full in terms of managing an economy that is changing so rapidly. More specifically to trade there was talk of China losing its dominance in manufacturing and our customers have talked of a desire of moving beyond China due to rising wages and some say the cost advantage is not as strong as it used. That is a real dynamic and lots of folks have acted on a desire to diversify beyond China. Over last decade of so, the Chinese manufacturing base developed a capabilities advantage that is proving to be durable and as a result people are finding it harder than they thought to go elsewhere as the capabilities they have come to rely on in China’s manufacturing base are not there in other countries and appears to be going strong and looks like it will continue for some time.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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