Manufacturing in China is Slowing

Since opening its society to the West in the early 1970s, and arguably since the Great Leap Forward, China has aimed at becoming an industrial powerhouse. Manufacturing in China has received endless support and encouragement from the government in Beijing, and the Chinese manufacturing sector has grown to become a main competitor of the rest of the industrialized world. Lately, however, manufacturing in China has hit a rough spot. What this means, what's causing it, and how it will potentially impact the American economy is important to know.

The last century was rough on China. Civil wars, foreign occupation, and famine devastated the country over and over. From this, the industrial power of modern China began to take shape. Throughout the late 1950s, and into the 1970s, China tried to force rapid progress through a series of top-down economic imperatives that devastated the nation. Beginning with Richard Nixon's detente efforts, the country gradually changed course and permitted more responsive market forces to drive manufacturing in China. This led to the present Chinese dominance of the global consumer goods and light manufacturing markets.

During the 1990s, China was granted permanent "Most Favored Nation" trading status with the United States. Since then, the two countries' economies have become ever more interlocked, to the point that one-sixth of the US consumer goods market is now stocked by the products of Chinese manufacturing. China and the US are now each other's leading trading partners, and trade between them is worth over $560 billion annually.

There are many reasons for this dominance, not least of which is the protectionist course of many Chinese policies. Manufacturing in China receives huge state subsidies and is safeguarded by a restricted currency, a managed stock exchange, and a tightly regulated credit market that is treated as an adjunct to manufacturing in China.

All is not well, however, because manufacturing in China has been showing signs of slowing down in recent years. One factor influencing this trend has been the recent economic slowdown in the US. As American consumers find themselves with less to spend on nonessential goods, Chinese-made products have found a less receptive market. Manufacturing has also been returning to the US, which is good news for American manufacturing workers, but it's depriving manufacturing in China of many much-needed foreign investors. Endemic fraud has also played a role in distorting China's economic indicators, as the Chinese Trade Ministry admitted in discussing falsified invoices that seem to show rising exports despite the slowing economy.

Whatever the year over year trends show, it's important to remember that China now has the world's second-largest economy, and that any slowdown in its manufacturing will send ripples across the world's other economies. Fortunately, China has a strong policy of industrial support, which means that manufacturing in China is unlikely to slip into free fall anytime soon.

(Photo courtesy of freedigitalphotos.net)