China will often come to mind when many North American manufacturing executives think of offshore manufacturing. While China's manufacturing sector was once a dominant force in offshore manufacturing, it has dropped in recent years as more manufacturers pull their production processes out of the country. Rising wages, low product quality and inflexible supply chains are all disadvantages of manufacturing in China - and the latest HSBC/Markit Purchasing Managers' Index (PMI) for China dropped to a three-month low in December.
According to the preliminary report, which is compiled using data from executives at more than 420 manufacturers, the index read at 50.5 in December, down from November's 50.8 posting. Any reading above 50 indicates expansion rather than contraction, so while December's number is still positive, China's manufacturing HSBC/Markit PMI has been dropping for some time. According to the report, the index had been improving throughout 2013 after it took a dip early in the year, and November had been a high point for the country's manufacturing sector. While December's reading marked the fifth-above 50 reading in a row due to steady demand, slow output and order backlog contributed to a drop.
The ongoing decline of Chinese manufacturing
The HSBC/Markit PMI wasn't the only indication that manufacturing in China is slipping. According to The Wall Street Journal, the Chinese government's manufacturing PMI for the country dropped to 51.0 in December after it had a reading of 51.4 in November and eight economists told the Journal the median forecast for the country's December PMI would be 51.2. The three official PMI subindexes - new order, new export orders and output - all dropped in December compared to November for China, which the Journal suggested might indicate demand is weak. The Financial Times reported that one survey found export orders in December fell to 49.8, an important drop from November's 50.6 indicating export orders are now contracting.
Compared to Japan, which Reuters reported hit a record high on the Markit/JMMA Manufacturing PMI in December, China's manufacturing sector may be weaker than other Asian countries'.
In addition, China's economic growth hit the slowest pace in 2013 since 1999, with the Journal reporting China's economy only grew by 7.6 percent. According to the Financial Times, Chinese economist Zhang Liqun said in a statement with the release of the state-sponsored PMI report that manufacturing in China might now be on the decline.
"From the overall situation we can predict that the future industrial growth rate will decline, the export growth rate may drop and economic growth is still under downward pressure," Liqun said, according to the Financial Times.
China's weakening manufacturing sector is even influencing global markets. According to The Associated Press, a slowing Chinese economic growth might be a key factor in why stock markets in Asia began 2014 off to a slow start, with numerous indexes dropping or remaining flat at the beginning of the new year.