China Works blog: China manufacturing news, analysis and insights

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.

Opinion has been divided on the deafening decibels generated by the vuvuzela horns, which have been an inarguable part of the 2010 World Cup. The trumpet-like horns have also sold well around the world, as football fans try to recreate the atmosphere of South African stadiums at home and in bars.

But who would have guessed that an instrument promoted as distinctively South African was mass produced in China? According to Chinese state media “up to 90 percent of the vuvuzelas in South Africa were made in China.”

One of the manufacturing companies quoted in the report, Zhejiang-based Jiying Plastic Products, said it had sold more than one million vuvuzela horns since April. The report added that “nearly all of the vuvuzelas blown by World Cup fans come from five factories in Guangdong province and Zhejiang.”

The horns are exported “at prices ranging from RMB0.6-2.5,” state media writes, and are sold for between RMB18-53. The good news for manufacturers is that the vuvuzela craze may endure beyond the World Cup – London Mayor Boris Johnson has hinted that the buzzing bee sounding horn might be welcomed at the London Olympics in 2012.

Despite a positive spin by Chinese state media, China’s manufacturing output growth slowed in May, raising further concerns of overheating in key economic metrics.

Asian stock markets reacted negatively to the news on fears that sluggish global demand for Chinese manufactured products in May maybe indicative of a further slowdown in the months ahead.

The official China Federation of Logistics and Purchasing managers index dropped to 53.9, from 55.7. While this still represents growth (for the 12th consecutive month), the rate of growth was below many analysts’ predictions. The official export orders sub-index fell to 53.8 in May, from April’s 54.5. Differing slightly from the official government statistics, the HSBC China Manufacturing Purchasing Managers Index dropped considerably from 55.2 in April to 52.7 in May.

Chinese media said the slower rate of manufacturing output growth showed “that the government’s tightening measures, including a crackdown on the property market, are starting to impact manufacturing activity.”

How do you make RMB16 billion by manufacturing refrigerators during a recession? Not an easy question to answer unless you are Qingdao-based white goods maker Haier, which has just announced that its 2009 net profit rose 49.64 per cent to RMB1.15 billion.

Haier achieved RMB16.28 billion of its RMB33 billion 2009 revenues by selling refrigerators, plus RMB8.65 billion from air conditioning unit sales and RMB2.71 billion from freezer appliances, according to its annual report released to the Shanghai Stock Exchange.

One reason cited for the increased sales during the global recession was the Chinese government’s RMB6.3 billion rural subsidy programme which was designed to boost purchases of home goods such as televisions, refrigerators and washing machines in poorer rural areas. “We will continue to expand our sales network especially in the rural areas,” says the Haier report.

The Qingdao headquartered appliance maker, which employs around 60,000 people worldwide, was last year ranked as the world’s leader in refrigerator sales, with a 12.4 per cent of global sales, according to Euromonitor International.

International manufacturing companies active in China are increasingly focused on accessing growing Chinese mainland markets, rather than using the country as an export base, according to a new report.

The 2009/10 China Manufacturing Competitiveness report, co-produced by the American Chamber of Commerce in Shanghai and Boo z & Co, reveals that 83 per cent (up from 71 per cent two years ago) of surveyed companies said their primary objective for locating manufacturing operations in China was to access the rapidly diversifying Chinese marketplace.

As cost and wage differentials in inland areas of China become more attractive compared to the higher rates in coastal areas, 28 per cent of respondents are considering relocating production facilities to central and southwest China. This serves two functions, helping to reduce factor costs and locating facilities closer to rapidly growing markets across China.

“This report is a snapshot in time of a picture that is rapidly moving,” said Ron Haddock, co-author of the report, “but the old paradigm that China is just a place for cheap labour is changing.”

Manufacturing models keep getting bigger and more ambitious in China. Television news has shown images of the nation’s first domestically manufactured large civil helicopter, which completed its first test flight this week. The AC313 helicopter – which has a maximum take-off weight of 13.8 tonnes and can carry up to 27 passengers – completed its maiden flight in Jingdezhen, Jiangxi province.

The helicopter, which has been designed and manufactured by the Aviation Industry Corporation of China (AVIC), has a maximum range of 559 miles, and its uses will include “search and rescue, fighting forest fires, and assisting in fighting fires in cities,” according to state media.

China is investing heavily to upgrade its aviation design and manufacturing capacities. Earlier this week, the government announced that the draft design of China’s first home-built jumbo jet airplane will be completed by the end of 2010. The jet, codenamed C919, will feature a 156-seat and a 168-seat model. It is slated to begin production in 2011, and is targeted to be operational in 2016. The aim is to deliver a jet that is “more comfortable, less oil-consuming and more economical than competitors in the aviation market,” according to Wu Guanghui, chief designer of the Commercial Aviation Corp (COMAC).

As well as developing its own aircraft manufacturing industry, China is also the home to the only Airbus assembly plant outside Europe. Last June, the plant in Tianjin delivered its first China-assembled A320 jet.

The warning signs are being flagged for China’s economy – particularly a rising industrial employment imbalance – even though the government has announced it is aiming for 11 per cent growth this year. In a televised speech, Premier Wen Jiabao said the Chinese economy was “facing difficulties.” Wen added that China must deal with “serious challenges in employment” particularly in coastal cities.

China’s labour supply still exceeds demand, and the urban employment situation “remains severe,” according to a senior Ministry of Human Resources and Social Security official quoted in state media. Some 150 million migrant workers headed to the cities in search of work last year, while the total of urban unemployed officially stands at 24 million. Adding a sense of urgency to China’s job creation programmes is the fact that a record total of 6.3 million university graduates will enter the workforce this year.

One solution, according to a state media opinion article is “for local factories and government to finally make decisions on industrial upgrading.” The article adds that while this will likely result in a short-term fall in revenues for factories and the government, it is “crucial for the sustainable development of factories and for addressing other social issues, such as the ongoing regional employment shortage.”

Chinese sportswear manufacturer and retailer Li Ning, founded by a former Chinese Olympic gymnast, has continued its international expansion by announcing a sponsorship deal for Spanish Primera Liga football club Espanyol.

The four-year sponsorship deal with the Barcelona-based team, currently lying 15^th in the Spanish league, was confirmed at a signing ceremony on February 26.

Li Ning already sponsors several international athletes, including NBA stars Shaquille O’ Neal, Berni Rodriguez and Baron Davis, and pole-vault world record holder Yelena Isinbayeva. It sponsors the Singapore national badminton team, and provides the apparel for the Spanish national basketball team. The company opened its first overseas sportswear store in Singapore in late 2009, and plans a global roll-out in the coming years.