Chinese Manufacturing Slows Down

A new survey indicates that the Chinese government’s efforts to cool down the economy are paying off. From the New York Times:

The initial results of a closely watched survey of purchasing managers produced reading of 48.9 in July, the lowest level in 28 months — down from 50.1 in June, said HSBC, which published the index.

Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, thanks to a combination of feeble global demand and tighter conditions at home.

For the past year and a half, policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank credits have become harder to obtain, for example, as banks were instructed to lend less.

Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in coming months, most analysts say.

See also “Factory Closings In South China. All Part Of The Plan” from the China Law Blog, which explains the government’s position on slowing down the sector:

The basic story is that that low value added/high labor content manufacturers from Wenzhou in Zhejiang down to Zhuhai in Guangzhou are undergoing extreme financial stress. The affected sectors are in the traditional outsourcing industries: textiles, toys, shoes and furniture. The reports are that many of the oldest and largest manufacturers in these sectors are closing their doors, leaving behind bad debts and unpaid workers.

These stories may be true or false.Certainly the bankruptcy of one or two companies in a competitive world does not constitute a trend. So the truth may be somewhere in between the “the sky is falling” and “what me worry” positions we are seeing in the discussion.

What I find interesting is the consistent misunderstanding of foreign observers on the Chinese government position on the matter. Specifically, many observers are surprised at the relatively casual response of the central and local governments to the issue. This is because these observers do not see that this process is completely consistent with central government policy.

July 21, 2011 7:35 AM
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Categories: Economy, Politics