Chinese Manufacturing Outlook 2013

China has been a country that people were saying is set to pass the United States in terms of economic power. Over the past few years however, China’s economy has been slowing down. As recently as the September economic reports, there are signs that China may be reversing that trend.

In an HSBC manufacturing sector survey, which measures the value of China’s factory sector, figures rose to 51.2 in September 2013 up from 50.1 beating analysts’ expectations. Anything above 50 indicates expansion in manufacturing which means that the nation’s manufacturing sector is expanding after months of contracting. Experts say that this was made possible after authorities in Beijing announced a series of reform measures to increase economic activity. These measures included tax cuts for small business and other forms of stimulus to speed up railroad construction in the inland areas. HSBC China analyst, Qu Hongbin said, “We expect a more sustained recovery as the further filtering-through of fine-tuning measures should lift economic demand. This will create more favorable conditions to push forward reforms, which should in turn boost mid- and long-term growth outlooks.” In addition, improved demand in the slowly recovering United States and European economies also provided a boost for China. New orders for exports increased for September, following the trend in trade data from August. While the manufacturing sector enjoys this turn around, many analysts caution that the upswing may not last into next year as the Beijing leadership will have to increase their efforts in facing down other issues such as “overcapacity in some major industries, often poor allocation of capital, and a buildup in debt over the last few years.” The next Central Committee meeting for the Chinese Government is to be held in November and will lay out the economic reforms moving forward. Zhu Haibin, chief China economist at JPMorgan Chase said, “Addressing these problems in the coming years implies that the economic recovery tends to be limited.”

From a historical economic standpoint, China is critical to the economies of the United States and the rest of the world. Manufacturing and trade data from China is crucial to gauging how well the world economy is doing. The recent upswing in Chinese manufacturing and exports indicates that the world economy, namely the United States and Europe are having an economic recovery of their own in terms of imports and consumer spending. China is particularly important to the United States because they are continuously financing the debt of the United States government. To do this, they are creating a trade imbalance by artificially lowering the value of their money by printing more and increasing demand for US dollars and then turning and buying United States Treasury bonds to gain interest. The overall goal of this is to keep the United States trading with China because it is so cheap, thus increasing exports and Chinese industry. In return, China is helping to keep the United States government operating the way it is by lending the money needed to pay for the cost of government, the United States debt. Now, if this upswing in Chinese manufacturing does not last, you can look for the world economy to begin stagnating again until further reform measures are put into place. So do not expect China to stop buying United States debt or artificially creating a trade imbalance anytime soon as it helps their economy.

In the end, the upswing in Chinese manufacturing is a positive thing for the economies of many countries around the world, especially the United States and those of Europe. However, analysts do not expect it to last through to next year as other economic issues loom large for China. The takeaway is that China’s economy and the world economy for that matter will remain on shaky ground until China, the United States and the Eurozone nations all put through beneficial reforms to grow all of their economies. The bad news is that this is a lot easier said than done.

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