#476. Why is China’s Manufacturing Sector Slowing?

Why is China’s Manufacturing Sector Slowing?

According to John Manzella, in his special report China’s Slow Growth Continues, More Crippling Hurdles Ahead”, posted on March 13, 2014, “…in the last 30 years, the country lifted 500 million people out of poverty” and “Today, China is the world’s largest manufacturer and exporter, and the second largest economy.”

So what are the challenges China faces moving forward?

–       Lack of effective checks and balances system – America is fortunate to have a strong checks and balances system that promotes competition. China’s brand of one-party authoritarian capitalism has created levels of corruption.

–       Chinese state-owned enterprises – With more than 100,000 state-owned enterprises, with assets totaling $13 trillion, the Chinese economy is controlled to a major extent by the state, not the market. State run companies tend to use capital less efficiently than private firms, and therefore, underperform.

–       China’s emerging labor shortage – In 1979, China introduced the one-child policy to alleviate social, economic, and environmental problems. However, many unintended consequences have emerged, including a decreasing workforce, as well as an aging workforce.

These are just a few of the issues facing the 2^nd largest economy in the world. We will be watching closely to see if the Chinese government will move forward on reforms necessary to keep their economy growing. Stay tuned.

Sources:

China’s Slow Growth Continues, More Crippling Hurdles Ahead, John Manzella
Manufacturing expands in U.S., slows in China; euro zone gears up, Reuters
Why China’s Manufacturing Sector Has Hit a Wall, Bloomberg Businessweek