China is leading the world’s economic recovery. For the first quarter of 2021, the country’s National Bureau of Statistics posted record annual output growth of 18.3%. This comes on the back of the first Chinese economic contraction in decades at the height of the pandemic in Q1 2020. But it is impressive nonetheless, with only the USA anywhere close behind, and EMEA trailing badly as the region continues to struggle with the virus. In this insight we pick out the main elements of China’s manufacturing recovery – both drivers and barriers – as featured in our latest update to the Manufacturing Industry Output Tracker (MIO).
Manufacturing recovery – some key indicators: added value; investment; capacity utilization
Let’s take a more detailed look at industrial recovery in China. If we work on the added value data of “industries above a designated size” (this is an official name used in China to refer to industries with annual revenues of 20m Yuan [$3.3m] or more), we see a year-on-year increase for the first quarter of 2021 of 24.5%. This is a significant boost when we take into account the 2019 figure for the same quarter: 14.0%. The table below tells us that most industries have experienced a year-on-year increase of at least 20% for Q1 2021. Meanwhile, the average is pushed up by some outstanding results, with the automobile sector – hit so badly in early 2020 – reporting year-on-year value-added growth of around 55%; and the electric machinery, general machinery and fabricated metal products sectors seeing a leap of 40%.
Whilst investment in manufacturing collapsed by -25.2% in Q1 2020, investor confidence has returned with a vengeance in most sectors, showing an overall increase of 25.6% in Q1 2021, exceeding the level before COVID-19. Investment in the chemicals sector has seen a near 50% increase; with medicines, food processing and railways and shipbuilding all at over 40%. But investor confidence has not yet returned to the automobile sector, being the only sector to report negative investment growth of the order of -4%. The very large discrepancy between value-added growth (55%) and the -4% investment growth is likely a result of caution on the part of automotive manufacturers when it comes to investing in new machinery due to the uncertainty caused by Coronavirus. If this is the case, there is potential for a significant jump in investment growth once automotive manufacturers have more confidence that the worst is behind us.
Another measure of recovery is the increase in the utilization rate of industrial capacity, which stands at 77.2% in the first quarter of 2021. This is nearly 10 percentage points higher than the same period last year, and 1.3% higher than Q1 2019. And don’t forget that this quarter takes in the traditional Chinese New Year holidays, when capacity utilization rate is always lower than in other quarters, so we can surely expect bigger increases as 2021 rolls on. Almost all the key industry sectors featured in the MIO reported a capacity utilization rate of at least 75%. Meanwhile, metal industries, special purpose machinery manufacturers and electrical machinery producers reported over 80% utilization.
Overseas exports: choked supply chains cause a spike in demand for Chinese products
March 2020 saw the lowest growth rate for China’s exports, followed by gradual increases thereafter. The spike in February 2021 looks quite exceptional, largely brought about by the country responding to the needs of foreign markets which were recovering but were finding that their normal supply chains were still choked by the fall-out of the virus, so they turned to China. In the main, the rate of exports to major destinations has not changed significantly compared to previous years. The United States, the EU, South-East Asia, Hong Kong, and Latin America continue to be the top five export destinations and revenues have increased significantly in the new year.
The bar chart above shows how revenues from China’s main export destinations in Q1 2021 have exceeded those in the same quarter in 2019, and exports to the US, EU, Latin America and the UK have grown by over 50% compared with Q1 2020. This is indeed a strong recovery.
China is recovering fast, but it won’t be a one-horse race
Our latest MIO update predicts consistent growth in manufacturing output in China. We are actually positing figures for the period 2021 to 2024 which are higher than the forecasts we made pre-COVID, in 2019. But China isn’t galloping off with all the goodies. Other regions are making a much slower recovery from the pandemic, and we don’t expect these economies to rebound until the end of 2021, or even 2022. But, when that rebound comes, we expect to see China‘s manufacturing output growth rate actually lag behind the global average. Something we have not seen for some time.
To continue the conversation about global manufacturing industry output, get in touch with Adrian Lloyd, CEO of Interact Analysis, direct: Adrian.Lloyd@InteractAnalysis.com