With such a sharp drop in the momentum of the Chinese economy in the third and fourth quarters of 2012 many people were concerned about the future of Chinese manufacturing. As we approach the middle of the first quarter of 2013, the outlook is positive. There are a number of reasons that confidence is high, but the main driver is the increase in demand for products worldwide, thus securing China’s manufacturing dominance.
Economic Changes in China
In 2012, as China reacted to the slow growth, they took steps to implement a series of economic stimulus measures to create movement in the markets. For years, China experienced expansion rates in the double digits. As with many countries worldwide, China began to see a slide in growth rates beginning around 2008. According to HSBC, January 2013 was the best month in the past two years.
Leading the World in Manufacturing
China is the world’s leading manufacturing country. They are not only the largest exporter of goods; they are the second largest importer, as well. In 2010, China superseded the United States to claim the title as the world’s largest manufacturer.
Why has China continued to lead the market when it comes to production? The biggest reason is competitive labor costs. Because of the high demand from the rest of the world for low-cost products, the sheer size of the Chinese workforce coupled with the lower wages means lower prices on goods. While this continues to be a positive note for China, it is also something to monitor in the next ten years; As the middle class grows, labor costs are expected to rise, as well.
Another reason the outlook is so favorable for Chinese manufacturing is the infusion of government programs that are designed to re-balance its economy. China has enacted the 12th Five-Year Plan in order to:
• Invest money into renewable energy
• Enhance environment protection practices
• Implement social reforms
• Supply better facilities that will attract investment from other countries
• Increase R&D spending
• Promote intellectual property
In 2012, China saw a decrease in the demand for automobile manufacturing due to energy efficiency problems with production. With the government making strides to increase energy efficiency, it is expected that China will regain their foothold in the automobile industry in 2013.
The largest sector of products manufactured in China are toys, textiles, and electrical products. With the ever expanding middle class, there is more demand than ever before for consumer goods. With technology leading the world, China is an ideal location for companies to source their manufacturing needs. Since these products are the largest areas for Chinese manufacturing, it is not expected that these areas will see dramatic growth in 2013 as they already dominate the market. The biggest areas that are expected to see growth are the metals manufacturing, food production, and energy.
With so much change in the economy of China, the manufacturing industry looks to be a bright spot for 2013. China will continue to lead the market in electronics and toys while increasing their manufacturing of industrial products. With the help of the Chinese government, manufacturing will be making some large strides in the next three years.