Manufacturing and the China Effect in 2016
On the first day of trading in 2016, the Chinese stock market collapsed. Chinese stocks tumbled seven percent in their opening session of 2016, forcing the exchange to suspend trading. Most analysts blamed the sharp decline on reports of weak factory activity. China’s economy, based heavily on manufacturing, is sputtering. Its manufacturing index has dropped for five consecutive months. The fall of the Chinese market had a big impact on most other markets worldwide. The global economy as a whole is weak. Chinese factories are operating at far less than capacity. In 2015, China manufacturing had the slowest growth in twenty-five years. The central bank cut interest rates but this has had little immediate impact.
The question on the minds of those of us directly involved in manufacturing in other parts of the world is how will this slump in China manufacturing will impact manufacturing in the United States and what will be the impact on our own businesses and jobs. There are differing opinions on what this means and we are only beginning 2016. 2015 was already challenging for many of us in the United States. Our own US manufacturing indexes were the lowest since 2009. We have been anticipating recovery and growth in the United States in 2016. When China seems to be in collapse can we still have recovery in manufacturing in the US and will the China effect put a damper on our own potential growth?
I’m an optimist and I have my own view on the future. There will be a choppy market in China for the next few months. They may have factories operating under capacity and some Chinese companies may go out of business. But in the end, the Chinese economy will stabilize and resume much of its growth. The government of China has more flexibility and more control over changes that can be made in its economy than most other nations. The country has a huge growing middle class that can consume a great deal of domestic production, even with weak exports. But with a weak economy they may choose to weaken their currency, reduce effective prices, and become more competitive.
In spite of the China manufacturing slump we may see in 2016, I am bullish that we will get the 2 percent growth in manufacturing in the United States that we have been expecting. We’ll overcome the headwinds of low oil prices, the strong dollar and the China effect and effectively increase our own production and manufacturing capacity. 2016 will be a good year for Optimation and the US manufacturers we support in their capital projects.