Manufacturing Sector in China Slows, the Government is Willing to Bring Momentum

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Manufacturing Sector in China Slows, the Government is Willing to Bring Momentum
Manufacturing Sector in China Slows, the Government is Willing to Bring Momentum

Manufacturing Sector in China Slows, the Government is Willing to Bring Momentum

The year 2013 was not so good for the Chinese manufacturing sector which slowed to a great extent. The latest data shows that the Chinese manufacturing index slipped to a four-month low in December. Before the situation worsens, President Xi Jinping is trying to sustain economic momentum with the help of reforms.

The National Bureau of Statistics and China’s logistics federation said today in Beijing that the Purchasing Managers’ Index or PMI was at 51 which is less than the median 51.2 estimate. A major crisis that the Chinese manufacturing sector is facing is that the local-government debt has gone to alarming levels.

Also, there has been a hike in property prices in some cities of China. The problem has been compounded by the volatility in money-market rates which are risks as Xi embarks on reforms intended to lay the foundations for more sustainable long-term growth. Despite the slower manufacturing sector, the Chinese economy may have expanded 7.6 percent in 2013.

Chinese Economy is Not Worse but Still a Shadow of its Historical Double Digit Growth
Despite its better than average growth, it is slower in Chinese standards as the national economy has been growing at double digits for close to two decades. The growth of 7.6 percent in 2013 is the slowest pace in 14 years and the Chinese leadership has made it clear that they want stable growth this year i.e. higher and sustainable.

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There was also a decline in the Shanghai Composite Index which fell 6.8 percent in 2013 which is a third year of declines out of four. The reason behind the fall is attributed to the fact that the climbing money-market rates fueled investor concern that corporate profits will decline and they started looking elsewhere.

The Chinese economy which was growing at the pace of 10 percent in the decade from 2000 to 2009, a lot of jobs were created; however, as it slows down, the ruling Communist Party wants sufficient expansion to protect jobs. The estimates from the market observers say that future economic growth may soften and so will be the employment numbers.

Moreover, as the latest report shows declines in gauges for manufacturing output, new orders, export orders and imports, etc. the situation may worsen. The problem is being compounded by the severe local-government debt that also includes contingent liabilities which rose to 17.9 trillion Yuan ($2.95 trillion) as of the end of June.

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