Industrial Automation 23rd May 2019

China’s Manufacturing Growth Slumped in 2018, Hindered by Automotive Industry Decline

Maya Xiao
Maya Xiao
Senior Analyst - China

Maya has an interdisciplinary technical background in vehicle electrification, system automation and robotics. Based in China, she is the lead analyst for Interact Analysis’ Li-ion battery and forklift research, also covering markets for industrial and collaborative robots.

In the Q1’19 release of our Manufacturing Industry Output (MIO) Tracker, we have reduced our estimate for China’s manufacturing output growth in 2018 based on newly released data from the National Bureau of Statistics:

Our estimate for overall growth of China’s manufacturing output in 2018 has been cut from 9.4% to 5.1%.
Hampered by a decline in the automotive industry, End-Industry Production output in 2018 has been reduced by 4.4 percentage points.
For 2019, we maintain our forecast from January 2019 (see here), predicting that China’s total manufacturing industry output will grow by just 1.9% – its lowest rate since 2008.

The Top 10 Manufacturing Industries Remain Unchanged

In 2018, China’s end-industries were running smoothly overall. The added value of industries grew by 6.2%, although the growth rate fell overall by 0.4 percentage points compared with 2017.

Figure 1 shows the Top 10 largest manufacturing industries in China remained unchanged in 2018 compared to 2017.

The steady transition of the semiconductor & electronic components industry to China helped it to become the fastest growing of the largest industries in China – experiencing a year-on-year growth rate of 12.2% in 2018.

Excluding the rapid growth of high-tech industries, China’s infrastructure investment began to rise again in the second half of 2018. It’s expected that with the implementation and development of several railway, highway and water conservancy facilities in 2019, related industries will also enjoy dividends. The projects are not yet built, but the preparation of material supply comes first, so aggregates production increased by 11.0% in 2018.

On the negative side, the output of the automotive industry fell by 4.2% year-on-year, which was its first decline since we’ve been tracking the industry (all the way back to 2007). Due to the importance of automotive production to the manufacturing industry, the Chinese government has introduced a series of policies to promote automobile sales in 2019 (which is discussed in detail in our latest report).

Deeper Industry Analysis

Figures 2 to 5 show the 2018 growth rates and growth adjustments applied to all industry sectors under End-Industry Production, Dedicated Machinery, Multi-Industry Machinery and Non-Manufacturing Machinery.

The overall growth rate for the total value of End-Industry Production in 2018 has been reduced by 4.4 percentage poiunts (from 9.4% to 5.0%).

Although food & beverage machinery (captured under Dedicated Machinery) is growing rapidly more reflecting equipment investment and industry future development; food & beverage production, which is more sensitive to consumer sentiment (terminal consumption), increased its output by only 3.6% in 2018, which is consistent with the marked decline in total retail sales of consumer goods in 2018.

Textile production in China is mainly affected by the overall outward migration of production to Southeast Asia and India, resulting in a sharp decline in output growth. However, as the focus of consumption in the Chinese market shifts from the mid- to high-end, domestic textile production will become more professional and sophisticated over time, hence the industry is expected to show a positive growth trend in 2019.

The overall growth rate of Dedicated Machinery was reduced by 1.1 percentage points (from 9.8% to 8.7%). An overall reduction in capacity and increasingly severe environmental protection measures in resource industries had a huge negative impact on metallurgy machinery (down from 12.5% to 4.5%) and mining machinery (down from 13.4% to 4.2%):

The overall growth rate of Multi-Industry Machinery has been reduced by 1.4 percentage points (from 5.5% to 4.1%). The main reason for the reduction posted here was two industries, machine tools and material handling equipment, which accounted for more than 80% of total output; were lowered by 3.7% and 1.0%, respectively:

The overall growth rate of Non-Manufacturing Machinery has been reduced by 1.5 percentage points (from 5.6% to 4.1%). This mainly resulted from a sharp reduction in growth for industrial turbines, generators & generator sets. However, with the further improvement of China’s urbanization and industrialization levels, electricity consumption will continue to rise, hence the demand for generators will increase day-by-day, meaning the market still has good market prospects longer term.

The 2019 Outlook for Manufacturing in China

With the current global economic situation unstable, trade friction risks rising, and the Chinese economy at a critical period of structural adjustment, China’s manufacturing industry will face greater downward pressure in 2019. As a result, Interact Analysis predicts that China’s manufacturing industry output will grow just 1.9% in 2019 (see more details here) – around 3 percentage points lower than in 2018. We will continue to track and update our outlook for 2019 should the situation change dramatically in the coming months.



Related Insights:

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Posted in: Industrial Automation.