China Facing a Huge Challenge in the Manufacturing Sector

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China Facing a Huge Challenge in the Manufacturing Sector
China Facing a Huge Challenge in the Manufacturing Sector

China Facing a Huge Challenge in the Manufacturing Sector

According to a Purchasing Managers’ Index China is facing huge challenges in the manufacturing sector as it fell to 49.5 from 50.5 in December. It is to be noted that a number below 50 indicates contraction and that is the beginning of trouble for the largest manufacturing hub in the world. Nevertheless, weak manufacturing also leads to unemployment to a great extent.

The local media is already alarmed with the Chinese manufacturing gauge signaling the first contraction in six months in January. The companies are cutting jobs and credit-market stress is causing a damp on confidence in the world’s second-biggest economy which till recently has been the powerhouse of the double digit growth.

Nevertheless, as China’s powerful manufacturing sector is shedding jobs at the fastest pace in almost five years, the policy makers in the country are worried that it may add to fears that the world’s second-largest economy is rapidly slowing. The situation may become severe as the U.S. Federal Reserve has already come up with its stimulus tapering plan.

Job Cuts in Manufacturing Sector the Fastest Since 2009

Earlier, the HSBC official Purchasing Managers’ Index, a key barometer of manufacturing output, fell to 49.5 in January which is less than what it was one month earlier, then it was 50.5 and according to analysts any reading which is below 50 indicates the manufacturing sector is contracting rather than expanding and that is quite disturbing fact for global economy at large.

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The data collected show that the monthly PMI went down as while production costs fell in January for the first time in six months, the rate of new orders was also falling rapidly. The export oriented manufacturing depends a lot on the orders it gets and if it slows down, the manufacturing units shut the operation and retrench the workers.

Even increasing the discounts for customers does not help manufacturers as they failed to revive business. The Chinese government even came up with its own stimulus when it injected fifty billion dollars in market but that too does not seem to be working. The situation has deteriorated as manufacturers started to cut jobs in the sector at the fastest rate since 2009.

According to some market observers as manufacturing is one of the largest components of China’s economy, its weakening may hit the economy to a great extent. However, it looks clear that weak manufacturing is just a symptom of the larger problem, that is, overall slow economy of the country.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com