Thoughts on the Chinese economy

The Chinese version of the ISM PMI® has ticked up from negative to positive territory, according to reports such as this one on Bloomberg.com.

A preliminary June Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.8, up from 49.4 in May. An index above 50 signifies expectations of growth, and Chinese leaders are giving themselves credit for stimulating the economy without resorting to drastic measures.

A survey of analysts by Reuters came to a similar conclusion about the growth of the Chinese economy. More reporting of a stronger Chinese economy comes from the South China Morning Post.

We do a significant amount of work in China and the business environment there is unique, but it has matured since the days when U.S. automakers, for instance, were almost demanding that suppliers source from there. Large Chinese companies are not just focused on exports, but meeting growing domestic demand. They are adapting more sophisticated sourcing strategies of their own, and even investing in manufacturing plants in the United States, as described in this article in The Detroit News.

The strength of China’s economy and the rapid change in sophisticated sourcing is evident in  increasing  demand for development programs, certification programs and alignment with key universities in China.

The maturation of Chinese companies does tend to reduce their cost-competitiveness, but it also introduces elements of stability that mitigate some risks from sourcing at a great distance. Economic indicators that show slow, steady growth are also good signs of stability.

 

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