After a shaky start to 2014, the Chinese manufacturing industry seems to be experiencing a comeback. Numbers from June 2014 indicate that the country's economy has leveled out, bringing strength and stability to manufacturers. The manufacturing growth came as positive news for Chinese manufacturers and economies around the world.
According to Reuters, the HSBC/Markit Flash China Manufacturing Purchasing Managers' Index increased from 49.4 in May to 50.8 in June. Because any reading above 50 on the index indicates that the manufacturing sector is growing, June's numbers show that the industry has stopped contracting and started to grow—albeit slowly. The increase was considerably higher than analysts expected.
June's positive growth numbers in the Chinese manufacturing industry are due, in part, to the government's stimulus programs. The measures, which were designed to boost economic growth in China, were small in scale, but they appear to be filtering down effectively. The targeted stimulus measures included a cut in reserve requirements for banks to support more generous lending.
The growth came as good news for professionals in the Chinese manufacturing industry, who have been struggling for much of 2014. New government measures and a relatively high level of labor force instability led to significant contraction at the beginning of the year. In January, manufacturing in China was hit hard as the China’s Shanghai Composite Index dropped by 0.5 percent. At the same time, stock prices the China Construction Bank Corp. dropped by three percent, and Hang Lung Properties Ltd. decreased by 5.1 percent.
The poor performance of the Chinese manufacturing industry at the beginning of the year was due partially to a lack of government attention. In January, officials were focused more on balancing the economy and cutting back on the country's outsized dependence on credit. Since then, as the economy has evened out, the government has begun to shift its focus.
The recent gains in the Chinese manufacturing industry have made a positive impact on the global economy. When the June HSBC index came out, oil prices rose in anticipation of increased demand. As the world's largest importer of oil, increased manufacturing in China can have ripple effects that extend across the globe.
Japanese manufacturing also grew in June, which further bolstered conditions around the world. That, paired with higher production activity in the United States and China's increased manufacturing growth, has led experts to predict positive economic activity in the coming months. As the world's three largest economies, Japan, China and the United States have a significant impact on the well-being of the global economy as a whole.
Although the Chinese manufacturing industry isn't completely out of the woods, June's unexpected growth is a positive sign. If the increase for demand continues, China has the potential to boost the global economy significantly over the coming months.
Image courtesy of suphakit73 at FreeDigitalPhotos.net
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