Feb 1, 2012

Can One Trust China's Economic Statistics?

The Dec reading of the Chinese official Purchasing Managers Index came in better than expected at 50.5. This would indicate a small expansion in manufacturing activity. If it were free of official manipulation, that is. And therein lies the issue with China's economic statistics - it is not clear if the numbers can be trusted.

Anecdotal evidence has been pointing to shrinking margins and difficulty in obtaining financing for the majority of Chinese small and medium manufacturers. Guangdong province is home to a large percentage of Chinese manufacturing and has in the past been dubbed "the factory of the world". However a survey by the
Guangdong provincial government, quoted by Caixin indicated that
Fifty percent of surveyed companies said they were losing money or had profit margins of less than 2 percent.
Further on the article contains an example of the magnitude of labor cost inflation that has hit factories located in the province:
Yao Xi, financial manager at a garment factory, said that three years ago workers were content to earn 800 to 1,000 yuan a month. "Now even novices want 1,500 yuan or more. Skilled workers may ask for as much as 3,000 yuan."
More than 100% increase in labor cost is likely to drive any low value-added manufacturer out of business and certainly not bring about a pick up in activity.

(For other WhatIf posts click here).

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