China's Manufacturing Fell in October

Chinese manufacturing output fell to a five-month low in October 2014, continuing a downward trend over the past four years. The country's manufacturing sector grew sluggishly over September, marked by a Purchasing Managers' Index of 50.4, versus a PMI of 50.2 the previous month. Any number more than 50 signals growth, but the index has stagnated near this level for most of 2014.

Factors that signal a slowdown include decreased employment, longer delivery times and decreased prices. New orders and output increased, but at a slower rate than predicted. Inventories have increased, commodity prices have fallen, and the Chinese manufacturing sector overall has "lost momentum," according to Business Insider.

These statistics point to a potential downturn in 2015. Analysts predict China will have $900 billion in GDP in 2015. Chinese manufacturing drives much of the rest of the world's global economy, especially the United States, and demand for Chinese goods declined in 2014. Some analysts saw China's PMI statistics as "good" compared to the rest of the world despite the gloomy news.

Part of the problem is the government's investment in China's infrastructure. Improving China's energy, transportation, communication and building needs accounted for more than 50 percent of the country's overall GDP. While building roads is important and creating energy grids for citizens helps move China forward, the country's manufacturing exports declined while the government focused on internal aspects of the economy.

Government over-investing contracted lending, so companies cannot reinvest capital gains. Plus, the government racked up huge debts to pay for its infrastructure improvements. Manufacturing output for infrastructure will eventually turn toward service-oriented industries as these improvements must be maintained and operated by people.

Chinese manufacturing, followed by exports to the United States, drives much of the world's economy as American consumers rely on cheaper goods from Asia. Unfortunately, China cannot export its roads, high-speed trains, hydroelectric dams and communications towers.

Until the powerful central government releases banks to invest elsewhere, state investment on infrastructure has reduced liquidity of banks. Chinese financial institutions cannot invest in exports until the government stops infrastructure improvements. These improvements will taper off eventually, but not in enough time to shift Chinese manufacturing to export mode and jumpstart the global economy.

Perhaps a Christmas miracle will occur with the coming holiday shopping season, but increased consumer spending for six weeks cannot sustain an entire year of manufacturing. China must shift its economy to more realistic levels if it is going to survive its current stagnation. Meanwhile, companies may seek Asian imports from elsewhere such as India, Thailand or Bangladesh.

China's economy is vitally important to many other countries, most notably the United States. Although Chinese manufacturing has been the world's model of rapid growth since the 1990s, perhaps it is time for other emerging markets to step up and fill the void left by China's economic contraction.

Photo courtesy of Wilson Huie at Flickr.com