China's manufacturing sector is one of the most important industries in the country because rapid manufacturing growth helped China achieve its status as the second-largest economy in the world. Although the manufacturing sector continues to experience some growth, the rate of growth has slowed considerably in just a few years. Because Chinese workers are now demanding higher wages, some companies are moving their manufacturing operations from China to other countries. Despite the loss of manufacturing work, China is still a giant in the industry.
Economists use PMI data to determine if an economy is expanding or shrinking. If a country's PMI is more than fifty, its economy is expanding. If the PMI drops below fifty, it is a sign of contraction. Richard Silk of "The Wall Street Journal" reported the initial reading of China's PMI for August was 50.1. Although this indicates some growth, it is very close to the dividing line between expansion and contraction. China's PMI has not fallen below fifty since September 2012.
If you look at the total PMI without looking at all of the other data available, you might think China's manufacturing sector is slowing to a halt. Fortunately, economists also consider new orders and manufacturing output when determining the health of the industry. In July, manufacturing output actually increased from 52.0 to 52.4. The new orders index also increased from 50.4 to 50.6. Companies manufacturing in China are receiving new orders and filling those orders, so the manufacturing sector continues to experience some growth.
China has several advantages compared to other Asian countries engaged in manufacturing. Its location is especially advantageous because the country has three distinct manufacturing clusters. The companies in the Yangtze River Delta typically specialize in producing cars, computers, semiconductors, and other products requiring a lot of capital. Pearl River Delta manufacturers have the workers needed to produce labor-intensive products. The Chinese information technology industry is found in Zhongguan Cun. Manufacturers use Hong Kong as a shipping port to ship products to other countries with ease.
China also has a high literacy rate, and workers tend to get more education than workers in other countries. This increases the quality of the labor force, positioning China as a leader in the manufacturing sector. In the United States, manufacturing companies are struggling with a shortage of skilled workers. China has a large workforce, making it possible for companies to be flexible during periods of peak production. This makes manufacturing in China an attractive prospect for some American companies.
Despite slower growth in 2013, China is still one of the biggest players in the manufacturing industry. The country's location and workforce characteristics will continue to make it a prime place to manufacture high-tech products as well as everyday staples shipped around the world. Although other Asian countries are starting to compete with China, there is a good chance they will not be able to overtake the country's position at the top of the manufacturing sector.
(Photo courtesy of domdeen / freedigitalphotos.net)
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