Slower Growth Ahead for Chinese Machine Manufacturing

Slower Growth Ahead for Chinese Machine Manufacturing

IHS forecasts 6.9% expansion this year, the slowest rate since 2012 “A major deceleration… ” Overcapacity + weak demand Better for wind turbines, PV machinery

Machinery production in China will expand by 6.9% this year, but that will be the slowest rate of growth since 2012 for the industrial sector in the world’s second-largest economy. That forecast is drawn from the Chinese Machinery Production Quarterly Tracker report, issued by IHS Inc., a global economic research and analysis firm. IHS pointed to the particular effects of industrial over-building in the recent past.

“China over the past several years has had among the highest growth rates in the world,” commented Jay Tang, analyst for Asia-Pacific industrial automation at IHS. “With the latest machinery production numbers showing a major deceleration, everyone now must accept that the Chinese economy is shifting to slower growth.”

IHS maintains a detailed analysis for numerous types of industrial machinery manufactured in China, some of which rely more heavily on investment and export markets, which are linked to factors that have hampered growth in China.

In support of that, IHS pointed out that HSBC reported its December manufacturing purchasing manager index (PMI) amounted to 49.6, the lowest level for the past eight months. NBS also announced a December manufacturing PMI index of 49.6, its lowest rate in 18 months. These indices document a weakening manufacturing sector in China, IHS noted.

IHS maintains a detailed analysis for each type of machinery manufactured in China, and some of those industries that rely heavily on investment and export markets continued to battle overcapacity and weak demand through 2014. Among these industries are construction machinery, metal working, mining machinery, paper and paperboard machinery, and textile machinery. Those inhibitors will continued for some time, according to IHS.

On the other hand, manufacturing industries that rely on Chinese domestic consumption continued to grow in 2014. These included agricultural machinery, elevators and escalators, electronics and electronics assembly, oil and gas, medical and scientific, food, beverage and tobacco machinery, and packaging machinery.  

China’s semiconductor machinery and industrial robot production were the fastest growing sectors in 2014, driven by strong demand from consumer electronics, in particular Apple Inc. products.

Some Chinese industries benefited from exceptional circumstances, e.g., wind turbines, which grew because of an increasing number grid-connected wind farms, as well as decreasing benchmark prices. IHS also noted moderate growth in production of photovoltaic (PV) manufacturing equipment.

Overall, the forecast group concluded the Chinese economy will continue to decelerate in the coming quarters, because of continuing overcapacity and poor prospects for organic growth. Those factors are particularly evident in the Chinese housing market and general industrial capacity. There is vulnerability too, because of the financial excesses in lending that financed past expansions, which have put a drag on economic expansion and impeded the Chinese government’s aggressive stimulus policies.

Added to this, a recent rebound in Chinese industrial exports has been uneven because weak industrial demand in the EU and the United States.

All these factors combined mean that the Chinese economy currently lacks the impetus to generate sustainable organic growth, and a further deceleration in Chinese economic expansion is forecast by IHS in 2015. Still, although economic activity remains weak, IHS contended that central government would take “appropriate countermeasures if growth is lower than it expects.”

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