China | Economic Growth & Entrepreneurship

China’s Economy Continues to Improve on Manufacturing

The Wall Street Journal | December 26, 2013

China’s stronger manufacturing and real estate sectors indicate a recovery, but there are some concerns on whether this is sustainable.

China Beige Book, an independent data roundup by CBB International, notes that the fourth quarter once again raises hope of a recovering manufacturing sector in China with far fewer manufacturers reporting declining production volumes.

“This is not surprising, but is a strong evidence of stabilization,” the report said.

China’s economy is an important bellwether and its slowdown for most of this year was a cause of concern. Its recent recovery is being watched closely as market participants try to analyze how the new administration will navigate the country through the rebalancing of its economy. One cause of concern, the China Beige Book highlights, is the rise in inventory at manufacturing and mining firms.

The stockpiling “calls into question on just how sustainable this expansion is,” the report said.

Still, there were more positive signs in the economy. China’s manufacturing base built on its recovery this quarter, with half of the firms reporting higher sales revenue and nearly as many volume gains. But the numbers were weaker than the first half of the year.

Once again, there was much more of an increase in domestic orders versus that of exports. Most of the export order book continued to come in from Asia and was down to the U.S. and Europe. The holiday season helped food manufacturers post both stronger volumes and revenues in the fourth quarter.

Retail spending increased modestly in the last quarter over the third quarter. In an interesting turn, luxury goods and furniture retailers reported a sharp pickup in revenues, the report said. Another notable feature of the quarter was the slowdown in sales of automotive products made by Japanese companies. The country’s anti-Japanese sentiment affected sales, the report said.

Major regional differences in retail growth continue, with big overall gains in the Guangdong, Beijing, Northeast and Central regions, while Shanghai and the Southwest slowed.

Meanwhile, 56% of businesses surveyed reported spending more in the latest quarter, primarily in capital improvements. Firms in the recovering mining sector led the spending table, followed by retailers.

But what seems to be the highlight is the slow clawing back of China’s mining companies. Though coal producers underperformed, metals and construction companies have begun to come back from their painful slump, the report said. Overall, 49% of mining companies saw revenues rise, a seven-percentage-point gain.

Real estate perked up this quarter, with 56% of the companies reporting higher revenues compared to 50% of the companies in the previous quarter, the report said. Residential and commercial developers improved on rebounding sales and rental prices.