China Works blog: China manufacturing news, analysis and insights

The manufacturing sector “will remain a major part of the Chinese economy for at least the next 100 years despite strikes and increased labour cost,” according to comments published in an article in Chinese state media.

Manufacturing in China accounts for around 47 percent of GDP, but rising costs, particularly for wages, have prompted speculation that cheaper labour locations, such as Vietnam, Sri Lanka, Bangladesh and some countries in Africa, are poised to benefit from a transfer of manufacturing investment away from China.

This may happen to some degree, especially in highly cost-sensitive products manufacturing, but larger operations targeted at increasingly confident Chinese consumers, rather than produced for export, seem determined to maintain their presence in China. After all, retail sales in China for the first five months of 2010 rose 18.6 per cent year on year, according to the National Bureau of Statistics.

The article published by People’s Daily, states that it now costs “nearly four times as much to employ a Chinese worker in the garment sector than someone from Vietnam.”

By contrast, the average annual manufacturing wage in China’s Guangdong province “increased by 144 per cent from 1998 to 2008,” according to figures from the Economist Intelligence Unit. Wages in lower-cost provinces are rising even faster in percentage terms – up by 263 percent in Hunan province during the same period, and by 258 percent in Guizhou.

It is a theme that we often refer to, but it is little surprise that auto manufacturing stories continue to grab headlines in China. The industry is experiencing an ongoing sales boom.

Total sales in the world’s largest auto market increased 47 percent year on year in the first half of 2010, according to the China Association of Automobile Manufacturers. This equates to 9.02 million vehicles sold between January and June, of which 3.18 million were “home-made passenger vehicles”, according to the CAMM.

The top five selling Chinese carmakers in the first half of 2010 were SAIC Motor, Dongfeng Motor, Changan Automobile, First Automobile Works, and Beijing Automobile Works. Meanwhile, General Motors’ vehicle sales in China during the first half of outstripped those in its home market for the first time in history. It sold 1.21 million units in China, and 1.08 million in the United States.

There is some concern, however, that Chinese auto manufacturers are expanding output too fast, despite the fact that more and more Chinese are owning their first car or trading up to a newer model. Auto output in China also rose significantly, up 49 percent year on year, for the first half of the year, but car sales in June slowed compared to previous months, prompting fears of possible overcapacity towards the end of the year.

China’s Purchasing Managers’ Index (PMI), which is regarded as a key measure of manufacturing industry performance, dropped for the second consecutive month in June, but remained above 50 points (which marks the point of economic expansion), according to the China Federation of Logistics and Purchasing.

The June PMI fell 1.8 percent month on month, to 52.1 percent. It has now registered above the 50 mark for 16th consecutive months, since last dropping below in February 2009. The Chinese PMI dropped to an all-time record low of 38.8 percent in November 2008, as the global economic crash impacted on both Chinese manufacturing order books and output levels.

Ten of the PMI’s sub-indices, including production, new orders and purchasing prices, all fell in June. The overall slowdown was attributed to “a moderation in the pace of China’s manufacturing expansion because of the country’s macro regulation policies and slowdown in global economic recovery,” according to the National Bureau of Statistics.