China's Factory Output Reaches Three-Year Low

China’s factory output dropped to 9.2% for the month of July. The figure should be the envy of most of the world’s other large economies. But it was a three-year low for China and confirmed what many economists already thought. Expansion in the People’s Republic, as measured by output, has tapered off. The data were released a day after information about output in the eurozone. In some nations within that union, output has contracted. Even in Germany, the figures were negative. But how bad is 9.2% in that context?

The 9.2% growth rate is somewhat at odds with PMI figures for the People’s Republic, which have run around 50 in the past few months, a sign that this part of China’s economy has neither contracted or grown much recently. Production growth, on the other hand, indicates the demand for Chinese manufactured goods remains strong — somewhere. That leaves two options. One is that China remains a low-cost provider to the balance of the world, and low-cost goods are actually attractive as the economic climate gets worse.

The other reason that Chinese manufacturing grew as rapidly as it did last month may be a continued demand for goods among China’s emerging middle class, which some experts say is more than 200 million people. China’s consumers have been savers, mostly, over the past several years. That trend may have changed a bit. It will take another few months of measurements, of gross domestic product in particular, to prove whether consumer spending has been robust.

The 9.2% rate may be another positive sign. Orders for Chinese goods to be sold over the balance of the year among its trading partners may have picked up slightly, either because of anticipated demand or a restocking of depleted inventories in places like the United States and Japan. Either way, there is a glimmer of hope that the world’s largest economies, mired in recessions, or nearly so, may recover a bit as the year comes to an end.

Douglas A. McIntyre