Commentary Directory

Chinese industrial production has improved 4.5% YoY in August, up from 3.7% YoY in July. This is the highest since April and the second highest since October 2022. Manufacturing production barely leads with a 5.4% YoY increase as oppose to a 2.3% YoY increase in mining and a 0.2% YoY increase in electricity, heat, gas, and water production. Production is being pushed forward by expansions in electrical machinery and equipment manufacturing (10.2% YoY), ferrous metal smelting (14.5% YoY), chemical manufacturing (14.8% YoY), and auto manufacturing (9.9% YoY). Additionally, jumps in the production of electric vehicles, solar panels, solar and hydroelectric generators, and integrated circuits are key areas of growth.

As we’ve seen in China’s own PMI and the S&P Global PMIs, the Chinese manufacturing sector has struggled to be a significant source of expansion in 2023. Part of that has been a result of its foreign trade partners seeing sharper slowdowns in growth, especially in their own manufacturing sectors. Indeed, China reports that its export delivery value is lower by -4.6% YoY in the current year-to-date period through August, and this comparison is against a year where China was still experiencing COVID restrictions. Thus, the gains in production that are being reported show domestic priorities and reflect the goals of the Chinese government to expand into high tech manufacturing. In the growth discussion, exports have been crucial to a strong Chinese expansion, and therefore, weak foreign demand will cause the Asian giant to struggle to post good numbers in 2023. The good news is that August’s data shows the economy is trending in the right direction, and it avoided disappointing estimates like it has done in the recent past.