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October PMI up to 50.9, showing continued slow growthMade in China.

The Index summarises responses from hundreds of manufacturers about factors including output, new orders, work backlog, employment and input costs.  Any number over 50 indicates growth.

Points of interest include:

  • new export orders grew at a faster rate than any time in the last 11 months.  The US was mentioned as a main source of new orders
  • production volume and work backlog both increased.
  • manufacturers are taking on more staff in their efforts to increase output and fulfil orders.

Ongoing Transition from ‘Manufacturing Factory’ to ‘Manufacturing Force’

What the PMI figures can’t show is the nature of manufacturing in China.  Industry experts have identified the following trends and issues:

  • There is a shift in focus to ‘making valuable products instead of low-priced, mass-produced goods’.  As the Chinese middle class grows, workers demand higher wages and better conditions, which increases costs.  China is facing competition from India and South East Asia.
  • A focus on greener growth and energy efficiency.  Dirty manufacturing means China faces challenges including air quality and water and soil pollution.  These need to be addressed not only for the sake of the Chinese population, but also to counteract increased pressure on resources and costs.
  • Utilisation of manufacturing capacity is relatively low, at under 75%.  By contrast, American utilisation is 78% and Japan is way ahead at 85%.
  • Quality of output is also becoming more important and continues to improve.  This is a natural consequence of moving to high-end manufacturing. While many factories meet international standards, others still need to invest more in materials, core components and technologies.

It’s important to realise also the sheer scale of manufacturing in China – the sector employs 100 million workers!  Inevitably, there is massive variety between individual factories.  Factory audits and quality control processes are a vital part of product sourcing, and Hornet makes this easy in China by having offices with local staff on the ground.  We help our clients find the right balance of price, efficiency, product quality and social responsibility, so they can import from China in the best way for their specific needs.

 

Sources: HSBC China PMI Index;  China Daily USA

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