Stimulus policies ‘improve outlook for China’s manufacturing output’
Author : Samantha Mou, Interact Analysis
21 February 2024
In order to better understand how China’s manufacturing industry is performing and its outlook for the future, we spoke with Interact Analysis Research Analyst, Samantha Mou.
Hi Samantha, what is the single most interesting thing you learnt about Chinese manufacturing during your latest research?
The most interesting thing to come out of the latest report for me is that manufacturing in China is finally showing signs of recovery, as the government implements stimulus policies, while global economic growth as a whole is slowing down. It will be very interesting to see whether national policies can successfully stimulate sustainable domestic demand in China and bring the economy into a recovery cycle. In our latest manufacturing industry output tracker, we discuss how China’s manufacturing PMI returned above 50 in September, while exports continue to register a substantial decline from 12 months ago. The growth of industrial value-added picked up slightly in August, but It will take more time for the policy effects to be reflected in industrial output results.
What is the outlook for Chinese manufacturing output in 2024? And in the long term?
In 2024, we expect slightly weaker growth (3.0 percent) for Chinese manufacturing output compared with 2023 (3.2 percent), affected by a fall in global demand amid a predicted short recession. However, part of the negative impact of the global slump could potentially be offset by some recovery in domestic demand, driven by stimulus policies and gradually increasing market optimism.
From 2025 to 2028, China’s manufacturing industry output (MIO) value is expected to witness relatively stable growth, at around 3-3.5 percent per year. Major risks to China’s manufacturing production in the mid- to long-term come from the trend for manufacturers to relocate production from China to neighboring countries, such as those in Southeast Asia, and India.
Overall, our forecast for the CAGR of China MIO value is 3.2 percent for the period from 2023 to 2028. Machinery production is expected to see higher growth than the much bigger industrial manufacturing sector, with forecast CAGRs of 3.7 percent and 3.2 percent respectively.
What changes have you seen to China’s manufacturing industry in your latest research and how has this affected your forecasts?
Lots of changes have happened to China’s economy in the third quarter of 2023. In July, we observed worse than expected performance for China’s manufacturing industry, with PMI, growth in domestic consumption and exports all hitting 2023 lows. Manufacturers were concerned about their weak order intake and margins. Following this dip, stimulus policies have been introduced intensively since August, starting to boost market sentiment. However, it will take time for the industry to stabilise before it can deliver sustainable recovery and the outlook for exports remains weak. Overall, we reduced our forecasts for year-on-year growth of China’s manufacturing output in 2023 by 0.2 percentage point to 3.2 percent.
By the end of 2023, the manufacturing industry in China is expected to bottom out and start to gain some momentum. In September, China’s manufacturing PMI returned to growth and sentiment picked up. This leads to a slight upward revision in our forecast for China’s MIO growth in 2024 – from 2.9 percent to 3.0 percent.
Which sectors are likely to be the winners and losers in China’s manufacturing sector next year?
Among the manufacturing sectors, automotive is the absolute winner in 2023, and it is expected to remain strong next year. Meanwhile, the semiconductor market is likely to experience another weak year, where we see no significant signs of improvement.
The machinery sector will experience higher growth rates overall than manufacturing, as products from China’s local suppliers continue to enter the market and compete with imported machines. Machinery related to materials handling – such as conveyors, cranes and elevators – are expected to lead market growth next year, while the printing machinery sector is forecast to see the lowest growth rate due to continually increasing levels of digitalisation.
What policies, regulations and global factors are likely to influence China’s manufacturing recovery?
Following a significant economic downturn in the second quarter of 2023, the Chinese government introduced stimulus policies intensively to boost domestic demand. In August, China lowered the one-year loan prime rate and the stock trade tax and then in September cut its national banks’ reserve requirement ratio by 0.25 percentage point.
To stimulate the real estate market, the existing housing loan interest rates were lowered and several restrictions on home purchases were relaxed. Industries that have been suffering from the property slump such as aggregates, steel and off-highway commercial vehicles may benefit from a gradual recovery of the housing market.
The government’s stimulus policies aim to encourage investment, which will eventually translate into industrial production activities.
The decrease in global demand is a risk factor to influence China’s manufacturing recovery. Sectors such as electronic equipment and automotive that performed well in exports will face increased pressures as a result of constrained demand next year.
Is domestic or overseas demand the key driver for China’s manufacturing industry?
In 2023, overseas demand has been the key driver for China’s manufacturing industry. Domestic demand experienced a temporary boom after the lift of Covid-prevention measures but cooled down rapidly. Due to the subdued domestic demand, competition among manufacturers has become more intense, hurting companies’ margins. However, overseas demand has been growing steadily at the same time.
In 2024, as the global economy is expected to cool down further, domestic demand is likely to fuel output growth. This is also an important reason for the Chinese government to introduce substantial stimulus policies.
Why is it important for manufacturers and machine builders to have a detailed picture of manufacturing industry output?
Demand for machines depends on the growth outlook for production, while demand for industrial components is impacted by trends in the machinery sectors. For strategic planning, suppliers in the manufacturing industry look for insights into how their industry is performing, what the forecasts look like and where the opportunities lie. Our Manufacturing Industry Output Tracker (MIO) provides the most up-to-date and comprehensive database available, covering a wide range of countries and industries. Moreover, the macroeconomic conditions are changing very quickly, which is why we update our forecasts quarterly, ensuring our customers have the frequent updates they need to enable them to see the global picture in their industry.
To learn more about our Manufacturing Industry Output (MIO) Tracker and China, get in touch with Samantha Mou directly: Samantha.Mou@interactanalysis.com.
Interact Analysis’ Manufacturing Industry Output (MIO) Tracker Report is published every quarter and provides a crucial insight into the fast-moving manufacturing sector. The report covers over 102 industries and sub-industries, across 45 countries, and presents 15 years of historical data alongside a 5-year forecast.
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