China's manufacturing industry continues to face challenges as it grapples with sluggish growth, according to the latest findings from Interact Analysis, a market intelligence research firm. The company's Manufacturing Industry Output Tracker, which provides quarterly insights into the manufacturing sector across 45 countries, has revealed a slight downward revision in the forecast growth for China's manufacturing output during 2024. The projected growth has been adjusted from 2.8% to 2.4% compared to the previous quarter's prediction.
Samantha Mou, a Research Analyst at Interact Analysis based in China, attributes this revision to several factors, including a dip in consumer spending growth, an ongoing housing market crisis, and a trend towards nearshoring led by the US 'decoupling' from the Chinese supply chain. These factors continue to constrain growth in China's manufacturing sector.
The domestic market in China remains sluggish, with intensive competition and price decreases prevalent. Deflationary pressures have been persistent in the manufacturing sector since the beginning of 2023, with China's Producer Price Index (PPI) falling by more than 2% year-on-year for 13 consecutive months as of April 2024. Although the manufacturing Purchasing Managers' Index returned to growth in March and April, the continued weakness in the property sector is expected to hinder significant improvement in domestic demand before the second half of 2024.
On the export front, China's total exports of goods fell by 4.6% in US dollars in 2023, but the decline has been narrowing in the second half of the year. In the first four months of 2024, China's export value returned to growth, increasing by 1.5% compared to the same period last year. Exports are recovering more quickly than domestic demand, with indications of resilience in both the US economy and global demand improving the outlook for Chinese exports. However, labor-intensive products are losing ground to higher value-added products in China's export structure.
Consumer demand in China remains weak, with the Consumer Price Index growth staying below 1% for more than a year since February 2023. The property slump has significantly lowered consumer confidence, as a large portion of Chinese households' wealth is tied to property. Falling house prices have made consumers feel poorer and more inclined to save, resulting in reduced demand and price competition among manufacturers.
The global economic climate is impacting China's manufacturing industry primarily through its effect on exports. The US 'decoupling' from the Chinese supply chain is having notable impacts, with some companies relocating or duplicating supply chains outside of China. Additionally, Europe is considering increasing tariffs on Chinese products, which could further affect China's exports. Some Chinese manufacturers, such as BYD, are setting up factories outside of China to mitigate the potential impact of such policies.
Despite the challenges, Interact Analysis expects the year-on-year growth of China's MIO value in 2024 to be 2.4%, a slight increase from the 2.0% growth registered in 2023. The semiconductor sector is expected to experience a strong recovery in 2024, driven by a cyclical recovery in global demand and reported strong growth in orders from manufacturers. The electronics and electrical equipment industry has seen the biggest increase in its forecast for 2024 growth, from 3.7% to 5.1%, due to anticipated improvements in export demand. However, the continued slump in the property sector and weak recovery in consumer confidence are expected to hamper China's manufacturing recovery, particularly in the non-metallic minerals and off-highway commercial vehicle industries.
