It is known that since 2014, China’s real economy keeps decreasing and the investment in manufacturing industry has been falling. However, we are glad to see that China’s manufacturing activity rebounded in March to its highest level since last August, thanks to the government’s continued structural reforms, as from the diagram below.
First of all, the Purchasing Managers’ index (PMI) is an indicator of the economic health of the manufacturing sector. PMI measures the performance of the manufacturing sector and it is based on five major indicators: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%). A PMI figure over 50 represents expansion of the manufacturing sector compared to the previous month. Accordingly, a reading under 50 represents a contraction, while a reading at 50 indicates no change.
We can read from the diagram that, since September 2014, the Purchasing Managers’ Index (PMI) has been decreased continuously. In February 2016, the PMI slides to the nadir. According to latest data of the State Statistics Bureau, in March 2016 the PMI has turned up to 50.2, up from February’s 49, and in April 2016 appeared to be 50.1.
In respect of the size of enterprise, in April 2016, different sizes of enterprises have different changes of PMI. The PMI of large-size enterprises is 51 which is down by 0.5 comparing to March 2016. The PMI of medium-size enterprises is 50 (0.9 higher than last month). The small-size enterprises’ PMI is 46.9 which is 1.2 lower than previous month and below the critical point. Thus, we may conclude that the small-size enterprises suffer more than large-size enterprises this month.
Consider five sub-index of PMI, in April 2016, the New Order is 51; the Output is 52.2; the Employment is 47.8; the Supplier Delivery Time is 50.1and the Stock of Items Purchased is 47.4. We may draw such conclusion that manufacturing enterprises is still in the process of layoff the employees and unemployed personnel of the manufacturing industry continue to increase. In addition, the Stock of Items Purchased is below the critical point (50) which indicates that the main raw material inventory decreases.
There are many problems in China’s traditional manufacturing industry. The industrial structure cannot meet the needs of the development. The enterprises which may cause pollution or have high energy consumption is going to be eliminated. The reform of the industrial structure is overwhelming.
The year of 2016 is the first year of thirteenth five-year plan of China. In order to ensure the steady growth of Chinese economy, China Government has taken many measures, including accelerating construction of Free Trade Zone, boosting construction of the Belt and Road, Internet Plus plan, Made in China 2025 strategy etc.
Through analysis of the data, we may find out that the PMI floats around the critical point. Even though the PMI data in April 2016 is still not perfect, comparing to recession of the period from 2014, we still can see the efforts of China’s manufacturing industry.
However, in the course of reform, there is always a transition period during which there is an economy depression. The industrial structure transformation still faces great pressure. High technology manufacturing industry and strategic emerging industry only contribute a small percentage to the manufacturing industry structure. However, the decrease of the traditional manufacturing industry which used to play a dominant role in the manufacturing industry slows down at the moment.
Therefore, even though China’s manufacturing industry still faces big challenge to change the industry structure, we also see the improvement of the industry. Let us look forward to China’s manufacturing industry transformation successful, giving birth to a new spring of blossomed development of China’s manufacturing industry.
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness.
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