China released a survey of purchasing managers yesterday and Chinese manufacturing is at an 11 month low. From Bloomberg:
“China’s manufacturing weakened by more than estimated in July, according to a preliminary survey of purchasing managers that casts further doubt on the government’s ability to meet its annual economic growth (CNGDPYOY) target.
The reading of 47.7 for an index released today by HSBC Holdings Plc and Markit Economics, if confirmed in the final report Aug. 1, would be the lowest in 11 months. Readings below 50 indicate contraction. A separate euro-area gauge showed manufacturing unexpectedly expanded this month.”
Could weaker manufacturing be a welcome sign for China? Could it be part of the plan?
A few years back I had read the most recent 5 year plan for China for 2011-2015 in detail. The plan is amazing simply as a document. I’d call it a must read if you are interested in China at all. However, if you want a shorter version, here is the summary from wikipedia.
One of the major ideas in the plan is a shift to greater domestic consumption and away from investment. This is a continuation of the economic restructuring goals of the prior 5 year plan.
Here is the first words of Chapter 9 of the guideline, which deals with manufacturing:
“Chapter 9: Improve and promote manufacture
Optimize structure, improve varieties and quality, enhance industry supporting capability, eliminate backward production capacity, develop the advanced equipment manufacturing industry, adjust the optimize raw material industries, transform and improve the consumer goods industry, and promoting the enlargement and enhancement of manufacturing industries.”
The very first words are about improving quality and structure. This means competing on quality more than on price.
We’ve seen how China allowed the Yuan to hit levels where U.S. manufacturing can now easily compete with their products. Since the Yuan has hit this level, they have allowed it to move a bit more slowly down, and even allowed the Yuan to weaken a bit late last year.
It seems to be a sign they want their manufacturers to compete as much on quality as on price. If you look at the verbiage in the 12th guideline, this is something China is attempting to promote within the country.