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China Sees Largest Manufacturing Expansion in Ten Years

Economics, Global Recovery, APAC...

Since the origin of the Covid-19 virus in Wuhan, China, the world watched as the country dealt with the pandemic.And also closely watched how the economy of China would recover, after what might have been the world’s most stringent social and business lockdown.

China is the world’s second largest economy, following closely behind the United States. As China was first to cope with the pandemic, the ability for the country to bounce back after gaining control of infection rates was impressive.There was not a single country in the world that did not feel the impact of the manufacturing pause from China.

In a new report of the Caixin China General Manufacturing PMI ™, the country has not only recovered but incredibly expanded during the pandemic.China’s factory production and activity rate grew at the highest level the country has seen in more than ten years.Employment rates have also surged in China as a result.

China’s rapid recovery is even more surprising, as B2B orders from customers in the United States and the EMEA slowed significantly.General purchasing in many sectors was done, reflecting a decrease in consumer demand and spending.In only a few small categories, order volume increased, predominantly in healthcare supplies and personal protection equipment (PPE).

While global business expansion plans for some sectors have been paused until the resolution of the Covid-19 emergency, some businesses are forging ahead.Competitively, one of the best times to enter a new market is during a recovery phase.

How Did China Boost Production and Manufacturing During the Pandemic?

The Caixin China General Manufacturing PMI shares some hints that the rapid sales demand and manufacturing growth is continuing to escalate in China. Dr. Wang Zhe (Senior Economist at Caixin Insight Group) stated:

“The Caixin China General Manufacturing PMI rose to 54.9 in November from 53.6 the previous month, the highest reading since November 2010. The Manufacturing PMI has now signaled an improvement in conditions for seven months in a row as the post-epidemic economic recovery continued to pick up speed.”

Why is the economic recovery so interesting? It does provide a glimpse of what a ‘U’ shaped post-pandemic recovery looks like.For nationals that specialize in industrial manufacturing and finished goods. Gross domestic product (GDP) grew 4.9% from July to September of 2020 in China. Slightly below the forecasted 5.2% rate.A nominal difference, considering the impact of the viral pandemic.

Reuters reported that Yoshikiyo Shimamine, Chief Economist at Dai-ichi Life Research Institute in Tokyo attributes the rapid growth to a trickle back of consumer confidence. When you multiple even a small percentage of growth in consumer demand by the number of countries that source almost exclusively from China, you can visualize how that adds up.

“China’s economy remains on the recovery path, driven by a rebound in exports. Consumer spending is also headed in the right direction, but we cannot say it has completely shaken off the drag caused by the coronavirus.”

While many developed nations continue to deal with a second wave of the Covid-19 virus and economic impacts, a slow rebound is also detected in consumer spending. News of several effective vaccines and immunization will create more consumer confidence.China is expected to continue to enjoy this recovery through December, fulfilling holiday product demands.

Economists Hope for U-Shaped Economic Recovery: China Demonstrates a “V” Shape Rapid Rebound

In terms of economic growth and activity, what goes now must come back up.Eventually. But as this is the first global pandemic the business community has dealt with since 1918, even economists are not sure what to expect.On the optimistic side, a ‘U” shaped recovery is what many countries project.

A “U” shaped recovery is consistent with economic recessions. There is a steep decline of GDP and economic output followed by a trough or lowest point that can last for several quarters. Then, a straight uphill recovery back to normal pre-event economic levels. The ‘U’ shaped recover takes a little longer at the lowest point of production, before climbing once more.

China was expected to do a similar recovery. Instead, the country has shown the possibility to do a ‘V’ shaped recovery. That means a rapid slide or reduction on economic activity. At the bottom of that model, there is no extended low period.It is similar to throwing a ball down a hole, and having it pop right back up instantaneously.

The relationship that China enjoys with developed nations makes the country the epicenter of virtually every kind of supply. From consumer products to industrial parts, and resin, metal, or plastic components for manufacturing. China’s main exports are automatic data processing components, textiles and clothing, smartphones and accessories and integrated circuits.

Straight down, and back on its feet.Would we really expect anything else from the world’s leading manufacturing country? And in addition to the burgeoning economic recovery and reemployment rates, China has also launched some new policies and laws that reduce barrier to entry for foreign businesses.

China Works to Entice More Foreign Investment With Open Global Economy Policies

On November 15th, China, Japan, South Korea and in total fifteen (15) Asia-Pacific countries signed a trade agreement that was a first ever historically. The Regional Comprehensive Economic Partnership (RECEP) is the first time all three Asian-Pacific economic superpowers (China, Japan, and South Korea) were ratified in the same agreement.

The RECEP is now the world’s largest trade agreement. The combined economies represent more than 2 billion people and a GDP of $26 trillion (and growing rapidly). One of the key points of the new RECEP is that it economically penalizes the United States. America participated in the Trans-Pacific Partnership (TPP) however that trade agreement was never completed by President Barack Obama.

China has expanded its access to the APAC region in terms of product distribution and raw commodities supplies to other partner nations. This will also help reduce issues with Intellectual Property (IP) laws and protections for IP were included in the deal. This opens China’s largest businesses to multinational growth without impediment, throughout Asia-Pacific, and new lucrative supply chains.

The trade war with the United States is still on going.In response and to offset impact of the U.S. trade war, Beijing has lowered business tax rates and barriers to entry for other countries.

Foreign Direct Investment (FDI) in 2019 in China was $137 billion dollars.An increase of 5.8% from 2018. China remains the second largest recipient of FDI in the world. And the country provides generous tax breaks, grants and low-cost government loans and a variety of subsidies to attract foreign investment.

The support is provided to help foreign businesses grow rapidly. And that of course is attractive to global businesses.