In the mixed bag of economic data released in March were hints that China’s manufacturing industry may be beginning to stabilize.
The China Federation of Logistics & Purchasing (CFLP) said its Purchasing Managers’ Index (PMI) rose to 49.0 in February, from 45.3 in January. While manufacturing still slowed in February – a figure under 50 indicates contraction – some saw the bump in PMI as a sign that manufacturers could be on the road to recovery.
However, it may be too early for such hopes, according to Isaac Meng, an economist with BNP Paribas in Beijing. "The problem is industrial production is really collapsing, and the key reason is the export [sector] is in way worse shape than people thought," he told CHINA ECONOMIC REVIEW.
China’s once-mighty exporters took another hit in February as exports plunged 25.7% year-on-year, far outstripping January’s 17.5% decline. Industrial production for the first two months clocked in at a meager 3.8%, compared to 6.4% in the fourth quarter of 2007.
Nonetheless, some manufacturers are cautiously optimistic. Jason Long, owner of Dongguan-based GM Bright Star, which makes molds for running shoes and other products, said his orders from January to mid-March had doubled compared to the first quarter of 2008. He expects this growth to continue at least through June.
Christopher Devereux, managing director of Chinasavvy, a Hong Kong- and Guangzhou-based company involved in manufacturing and sourcing, said that the global slowdown has separated the wheat from the chaff in the sector, leaving quality manufacturers well positioned to grab orders.
"All of our existing customers in the UK and the US are actually increasing their workload with us. We’re also picking up new business from people who haven’t dealt with China before," he said.
Beijing may also step in with more assistance for manufacturers. China’s Commerce Minister Chen Deming promised in March that export taxes would be gradually removed and further financial aid would be forthcoming. The government is also expected to allow traders to settle international deals in renminbi, reducing costs and exchange-rate risks.
However, Beijing will not meet the demands at the top of exporters’ wish lists – a weaker renminbi, lower corporate tax rates, and changes to the Labor Contract Law, which are blamed for rising business costs.
Still, some see reasons for optimism. As one manufacturer said, "We’ll probably spend less and make a little less, but we’ll be profitable."