Asia's Manufacturing Outlook: China Faces Mixed Signals

Asia's manufacturing industry shows varied performance, with Taiwan and South Korea seeing significant growth while China faces uneven recovery and external pressures.

Published July 02, 2024 - 00:07am

3 minutes read
Hong Kong

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In June, Taiwan and South Korea's manufacturing sectors experienced their best performance in two years, according to the purchasing managers' indexes (PMIs) published by S&P Global. Taiwan's PMI surged to 53.2, indicating robust growth driven by increased domestic and international demand for its semiconductors. In parallel, South Korea's PMI climbed to 52, reflecting strong export orders from Asian, European, and North American clients.

Meanwhile, Southeast Asia also saw significant growth, with Vietnam posting a PMI of 54.7 as firms ramped up production to meet booming new orders. The Philippines, Thailand, and Indonesia continued their manufacturing expansion, while Malaysia saw a slight dip into contraction.

In contrast, China's manufacturing sector presented a more complex picture. Surveys indicated mixed outcomes, with the official PMI remaining at 49.5 in June, signaling stable yet unaccelerated growth. However, a private survey by Caixin reported a slight uptick to 51.8, marking the fastest factory output growth in two years.

Zhao Qinghe of the National Bureau of Statistics noted that while China's manufacturing output is expanding, recovery momentum remains weak, particularly due to declining new export orders influenced by tariff hikes in the EU and US. This instability challenges China's economic growth target of around 5% for the year.

The contrasting PMIs from official and private surveys underscore variations in outlook and sentiment among factory managers. The Caixin survey, which tends to focus on export-oriented and consumer-related companies, showed stronger performance compared to the official PMI, which leans towards larger manufacturers in industrial materials production.

Goldman Sachs analysts highlighted that the widening gap between the Caixin and official PMIs could be attributed to these sectoral differences. Larger state-owned manufacturers have been more susceptible to fluctuations in fixed-asset investments, whereas private firms have benefited from robust domestic and international demand.

Despite these positive indicators, Chinese manufacturers remain cautious about future prospects. Concerns over downward economic pressure and fierce market competition have been exacerbated by recent tariff announcements from the US and EU. The US recently quadrupled tariffs on Chinese electric vehicles, while the EU announced plans to impose tariffs of up to 38.1% on Chinese electric vehicles, citing unfair competitive practices.

Senior economist Wang Zhe from Caixin Insight Group emphasized that despite hurdles, China's manufacturing sector experienced growth in June, driven by increasing supply, domestic demand, and exports. However, he noted a significant decline in the gauge for future output expectations, the lowest since November 2019.

While the broader Asian manufacturing rebound offers some optimism for the global economy amidst ongoing trade tensions, China's uneven recovery trajectory remains a key area of concern. As top Communist Party officials prepare to gather for strategic economic discussions, the need for further consolidation to sustain recovery becomes increasingly critical.

As the global trade landscape evolves, the manufacturing sectors in Taiwan, South Korea, and China will continue to be focal points for economic analysts. The varied performance across these key Asian economies will likely influence broader global economic trends, particularly as trade policies and international demand dynamics continue to shift.


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