Explainer | China manufacturing: everything you need to know
- China is the world’s largest manufacturer in terms of output and has earned a reputation as the ‘world’s factory’
- China’s two purchasing managers’ indices (PMIs) are indicators of the economic health of the economy, gauging sentiment in the business sector
China is the world’s largest manufacturer in terms of output and has gained a reputation as the “world’s factory” soon after its accession to the World Trade Organization (WTO) in 2001.
Lured by cheap labour, China’s commitment to opening up its economy, and low tariff access to Western markets, all due to its WTO entry, foreign firms and investors rushed to do business in the world’s most populous country in the new millennium.
Aided by state investment, China has since become a world leader in the manufacture of steel, car parts, chemicals, electronics, and robotics.
How is the performance in China’s manufacturing sector measured?
China’s two purchasing managers’ indices (PMIs) are indicators of the economic health of the economy, gauging business sentiment in the sector.
The official PMI released by the National Bureau of Statistics largely measures the sentiment among larger firms, many of which are state-owned.
The PMI produced by Markit for Caixin magazine largely measures sentiment among smaller, mostly private firms.
The indices are compiled from surveys of business owners and supply-chain managers, gauging changes in production, new orders, employment and delivery times, among other metrics.
Both are usually released at the start of each month, meaning they serve as early indicators of the economic conditions ahead of other data.
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What is the purchasing managers' index (PMI)?
How has China’s manufacturing sector evolved?
Companies, especially those in low-margin, labour-intensive industries, began relocating to Southeast Asian countries such as Vietnam because of the rising cost of wages, land and taxes in China. Large parts of the clothing and footwear industry, in particular, have left China for cheaper locations such as Bangladesh.
Many of China’s laid-off migrant workers in labour-intensive industries have also shifted to the country’s burgeoning services sector. This trend accelerated due to the impact of the coronavirus pandemic.
China’s export growth was initially fuelled by the so-called processing trade, with Chinese factories assembling components made in other countries.
However, China is increasingly producing its own components and high-value goods, with processing-trade industries – smartphone assembly, for instance – starting to move to cheaper locations such as Vietnam and India.
How did the coronavirus affect China’s manufacturing sector?
Factories in China traditionally close during the week-long Lunar New Year holiday in late January or early February, but the shutdown was extended in 2020 as part of efforts to contain the coronavirus outbreak. Manufacturers then struggled to resume operations, with many workers unable to return to work due to virus-related travel restrictions.
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Chinese medical product manufacturers see surge in overseas orders amid Covid-19 pandemic
In the first five months of the year, 70,802 new companies registered to make or trade face masks in China – a 1,256 per cent rise from a year earlier.
At the same time, 7,296 new companies registered to make or trade meltblown fabric, a vital component in mask making, resulting in a 2,277 per cent increase in registrations from a year earlier, according to Tianyancha, a company registration information website.
How did the US-China trade war impact China’s manufacturing industry?
Ongoing US-China trade tensions are likely to reshape manufacturing in a way that could lead to the further relocation of production in the future, according to analysts.
“We will make America into the manufacturing superpower of the world and will end our reliance on China once and for all,” Trump said in September.
What was the ‘Made in China 2025’ plan?
Over the last decade, the Chinese government launched several industrial policy plans, including the controversial “Made in China 2025” blueprint, aimed at developing world-leading hi-tech firms in 10 cutting-edge industries as part of its plan to move value chains away from a traditional reliance on the mass production of low-end goods.
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What’s the beef with the ‘Made in China 2025’ strategy?
How is China trying to upgrade its manufacturing industry?
Excessive use of industrial subsidies, particularly by local governments, as well as the poor implementation of anti-pollution standards, and the inability of the government to help small, private firms deal with short-term operational difficulties, were stunting the innovation process necessary to upgrade the nation’s manufacturing base, the study found.
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Millions of new blue-collar jobs are piling on pressure for many workers in China
About 20 “shared manufacturing platforms with strong innovation capabilities and great industry influence” were to be built up by 2022, and then turned into “key drivers for high-quality growth” by 2025, according to the plan.
While the ministry did not specify the platforms nor name any potential candidates, it clarified that the plan involved sharing production facilities, tools and equipment, as well as intellectual resources such as product design and development capabilities. Manufacturing-related services such as storage space and logistics could also be shared, the guidelines said.
It is hoped that the plan will boost resource allocation, improve efficiency and cut idle capacity among large, medium-sized and small businesses.
What does China’s dual-circulation strategy mean for its manufacturing industry?
It means China’s production system will be repositioned to focus more on demand at home – internal circulation – rather than abroad.
Nevertheless, the strategy still calls for the production of high-value exports, or external circulation.
What is the outlook for China’s manufacturing sector?
China is expected to be the only Group of 20 country to record positive growth in 2020, with the International Monetary Fund projecting GDP to increase 1.9 per cent in 2020 and 8.2 per cent next year.
“Looking ahead, the recovery of household spending has been the most significant development recently,” said Julian Evans-Pritchard, senior China economist at Capital Economics, commenting on the official PMI data for November.
“We expect it to continue as the tightening of the labour market and improving consumer sentiment lead households to run down the excess savings they accumulated this year.
“That should further support the rebound in services activity. It should also boost manufacturing, which will continue to benefit too from supportive fiscal policy and strong foreign demand.”
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