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Chinese Manufacturing Slump

Written By Brian Hicks

Posted May 2, 2013

It’s no secret that much of the world relies on the success of the Chinese economy. Being an economic leader, after all, means that everything a country does has a ripple effect of some sort, and the scenario is no different with China. 

china construction sidebarNow, a manufacturing slump may serve to worsen China’s economy, not long after a boom that will likely not last as long as expected.

Reports released Wednesday showed that the Chinese economy experienced weaker than preferred growth in April. The Purchasing Managers’ Index fell to 50.6 from 50.9 in March, showing that the country has seen a bit of a slowdown in comparison to the small recovery that was expected.

As a result of the news, stocks and copper in Australia have fallen slightly amidst fears that China will be slowing its consumption of building materials and other commodities.

Much of the slowdown in China comes from a manufacturing standpoint. Numbers have shown that manufacturing in the country has indeed slowed down, with orders dropping and production rates falling in tandem.

A Unique Scenario

The scenario in China is unique for a variety of reasons. For one, many analysts believe that the Chinese economy is actually growing, just not at the rate that was expected by many for a period of time.

Even though things haven’t hit expectations recently, it might not be time yet to sound a major alarm.

Regardless, the slowing of the economy’s growth has a lot of people worried, and not just because China is such a major purchaser of globally produced commodities.

A slowdown in the Chinese economy could signal a worldwide shift, as the nation has the world’s second-largest economy. Problems in the Chinese economy could very well serve as indicating factors with broad-reaching consequences, especially if trade becomes heavily affected. 

Reports regarding April numbers don’t necessarily bode well for where China’s economy will end up in the 2nd quarter of 2013, although the nation’s ability to rebound should not be altogether discounted.

Cause and Effect

Truth be told, China has a lot of things going for it. The nation’s plan to build a massive amount of infrastructure in the coming years and significantly increase the spread of urbanization could have a strongly positive effect on the economy—not only in China but in the rest of the world as well. 

The government’s plan to keep China’s economy strong relies heavily on infrastructure-building and the housing market, so it should come as no surprise that any growth the country sees in the coming months and years will likely be a result of success in these sectors.

In the end, however, growth in infrastructure and housing could prove to be a double-edged sword for China. Anyone who is familiar with financial bubbles knows that they can burst as quickly as they can grow, and the end result is sometimes even worse than where things began.

The massive amount of work going into building infrastructure and fostering the housing market in China could indeed create such a bubble effect, and if this pops, it could devastate the country’s ability to grow its economy.

It’s too early to assume that a bubble is a given in this scenario, as China is embarking on territory that has yet to be seen. Large-scale urbanization has, of course, been done throughout the world for centuries, but China’s hopes to push rural citizens into more urbanized areas can be seen as an experiment, especially in modern times.

If China is going to continue seeing large-scale economic growth, the country needs to rely on manufacturing to get it there. Increased manufacturing in China will also serve to improve the global economy, with raw materials such as copper likely to go up in price as demand soars.

As one of the most influential countries in the world, China has a great deal of pressure on it right now. It would be unfair to assume that everything will fall apart just because economic growth has been slower than expected, but the nation’s government will no doubt be paying close attention to growth in infrastructure and housing in the coming months.


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